The Zhitong Finance App learned that on March 16, Fuyao Glass (03606) held the 2023 annual results conference. At the meeting, Fuyao Glass said that an important factor in the company's performance growth in 2023 is the increase in average selling price (ASP). Overall, the company's main business revenue for auto glass for the year was 29.887 billion yuan, sales increased 10.24% year on year, and unit price increased 5.94% year on year.

In 2023, Fuyao Glass's gross margin for the whole year was 35.39%, up 1.36 percentage points from last year. Among them, improving quality and efficiency is an important reason. Furthermore, the effect of operating leverage and the year-on-year decline in shipping costs are also key factors. The company also continued to optimize its product structure. The share of revenue from high value-added products rose to 53.94%, an increase of 9.5 percentage points over the previous year. ASP was also strengthened, increasing by 5.94 percentage points, all thanks to an increase in the proportion of high value-added products.

In view of the trend of electrification and intelligence in the automotive industry, the company pointed out at the conference that Fuyao Glass's ASP will continue to grow for the next 3 to 5 years, and is likely to increase by 6 to 7 percentage points each year. This is because the company's product structure will continue to lean towards high value-added products.

In addition, Fuyao Glass will invest 9 billion yuan in fixed assets. This investment is mainly to obtain new orders and lay a solid foundation. Fuyao Glass is upgrading around the three major aspects of R&D investment, service capabilities, and industrial chain integration, with the aim of seeking greater market share and improving equipment levels. Specifically, the Fuqing project is expected to increase production by 20.5 million square meters, and the Anhui project is expected to increase production by 26.1 million square meters, totaling about 46.6 million square meters. This production expansion is based on medium- to long-term expectations for the automotive industry to grow at an average global growth rate of 2.5% to 3%. The company is confident in the development prospects and believes that these investments can increase the company's global competitiveness.

Q&A:

Q: What is the growth rate of ASP in 2023? What is the specific situation at home and abroad, and what is the outlook for ASP growth in the future?

A: In 2023, we achieved performance growth, and the increase in average selling price (ASP) was an important factor. Overall, our main business revenue for auto glass for the year was 29.887 billion yuan, sales increased 10.24% year on year, and unit price increased 5.94% year on year. Although it is not possible to provide specific comparative data at home and abroad, we can see the contribution of ASP improvement from the main product categories. The annual report shows that our average unit price last year was 213.24 yuan per square meter. Regarding the future outlook for ASP, we will continue to pay attention to the optimization and upgrading of the product structure and market conditions to achieve reasonable growth.

Q: What are the specific financial results of Fuyao Glass in 2023?

A: Fuyao Glass performed well in 2023. Annual revenue reached RMB 33.161 billion, an increase of 18.02% over the previous year. Net profit attributable to shareholders of listed companies was 5.629 billion yuan, an increase of 18.37% over the previous year. The weighted average return on net assets reached 18.97%, an increase of 1.32 percentage points over the previous year. The basic earnings per share was 2.16 yuan, an increase of 18.68% over the previous year. In terms of profitability, gross operating margin was 35.39%, an increase of 1.36 percentage points compared with the same period last year. The company's cash flow from operating activities was 7.625 billion yuan, an increase of 29.38% over the previous year.

Q: What efforts has the company made to reduce costs and increase efficiency and optimize the product structure?

A: Our gross margin increased in 2023. Specifically, the gross margin for the whole year was 35.39%, up 1.36 percentage points from last year. Improving quality and efficiency is an important reason. In addition, the effect of operating leverage and the year-on-year decline in shipping costs are also key factors. We also continued to optimize our product structure, and the share of revenue from high value-added products rose to 53.94%, an increase of 9.5 percentage points over the previous year. ASP was also strengthened, increasing by 5.94 percentage points, all thanks to an increase in the proportion of high value-added products.

Q: What are the cost control measures in 2023?

A: The company has been very effective in controlling expenses during the period. The share of sales expenses, management expenses, and R&D expenses in revenue for the whole year fell to 16.37%, a decrease of 0.5 percentage points compared to last year. This reflects the effect of scale and the effectiveness of operating leverage.

Q: What are Fuyao Glass's plans for investors' cash return policies?

A: We take the return on cash to investors very seriously. The 2023 dividend plan is a cash dividend of 1.3 yuan (tax included) per share, which is 0.05 yuan more per share. This means that dividends account for 60.3% of net profit attributable to the parent company. If from 2021 to 2023, cash dividends for the past three years accounted for 68.47% of net profit to mother.

Q: How was Fuyao Glass's average sales price (ASP) last year?

A: In 2022, Fuyao Glass's ASP increased from RMB 201.28 to RMB 213.2, an increase of 5.94 percentage points. This increase is mainly due to product structure optimization, that is, an increase in the proportion of high value-added products. For example, the share of panoramic sunroofs in revenue increased from 7.01% last year to 8.73%, and the head-up display (HUD) reached 6.61%, an increase of 1.81 percentage points; formaldehyde tempered side windows reached 5.41%, an increase of 0.99 percentage points; products related to assisted driving with cameras reached 7.76%, an increase of 0.7 percentage points; coated insulation products now account for 2.62%, an increase of 1.3 percentage points; heating products with clips account for about 2.05%, an increase of 1.19 percentage points.

Q: What do you think of Fuyao Glass's future ASP growth prospects?

A: Given the trend of electrification and intelligence in the automotive industry, I think Fuyao Glass's ASP will continue to grow for the next 3 to 5 years, and is likely to increase by 6 to 7 percentage points each year. This is because the company's product structure will continue to lean towards high value-added products.

Q: What is Fuyao Glass's dividend policy?

A: Fuyao Glass takes investor returns very seriously. The dividend ratio for the past three years reached 68.47%. If you count the dividends since listing in 1993, the cumulative ratio is about 65%. The dividend policy will be determined based on a combination of factors such as global economic and financial conditions and the company's capital operating expenses. For example, capital expenditure in 2023 is expected to be about $8.888 billion less than this year, but this will not affect the company's development plans. Maximizing company value not only represents company growth, but also reflects maximizing shareholder value. The capital expenditure of the 2024 plan is about 8.02 billion yuan. Considering all factors, the 2024 dividend plan is to distribute 1.3 yuan per share, an increase of 0.5 percentage points compared to last year. We estimate that this will keep the company's balance ratio basically stable and continue to focus on investor returns.

Q: What is Fuyao Glass's gross margin data for the fourth quarter? Is there specific data on revenue growth and raw materials such as soda ash and freight?

A: Fuyao Glass's gross margin for the fourth quarter increased by 3.69 percentage points year on year and 0.2 percentage points month on month. In the fourth quarter, when calculating natural gas prices, we took into account the price increase due to the Russian-Ukrainian conflict, which affected gross margin by 1.56 percent. If this factor is excluded, the year-on-year increase should be 2.1 percent. Furthermore, the increase in product quality and efficiency and average sales price contributed about 1 percentage point, while our operating leverage effect increased by 0.75 percentage points.

Q: What is Fuyao Glass's investment plan for the next few years?

A: Regarding future investments, in 2024, we expect the total investment amount to be RMB 8.12 billion, while the total investment for the two projects in Anhui and Fujian is estimated to be about RMB 9 billion, of which the fixed asset investment is about RMB 6.2 billion. Since construction on these two projects will span two years, it is expected that they will begin in early 2024 to be completed by the end of 2025. Of this investment of 8.12 billion yuan, about 2 billion yuan is cash expenses related to these two projects. There is also an investment of about 1.8 billion yuan, which was deferred from the previous year to the present. This means that the actual investment for project construction in 2024 will be RMB 4.32 billion.

Q: What is Fuyao Glass's outlook for gross margin trends in 2024?

A: There are many factors that affect gross margin, including raw material costs, depreciation, and product structure of high value-added products. Although energy price fluctuations have a significant impact on gross margins, we expect energy prices in 2024 to be comparable to 2023. In terms of soda ash prices, although it was previously expected to fall, the 2023 price remained the same as 2022 due to futures fluctuations. For 2024, the price of soda ash is expected to drop. It is expected to drop by more than 400 yuan per ton (about 450 yuan including tax, about 400 yuan without tax). As for shipping costs, as the decline began in the second half of 2022, we think the 2024 level should be at the same level as 2023. Furthermore, with the continuous optimization of our high value-added product structure, it is expected to have a positive effect on gross margin.

Q: What are Fuyao Glass's main considerations for investing RMB 9 billion in fixed assets?

A: This investment is mainly to obtain new orders and lay a solid foundation. Fuyao Glass is upgrading around the three major aspects of R&D investment, service capabilities, and industrial chain integration, with the aim of seeking greater market share and improving equipment levels. Specifically, the Fuqing project is expected to increase production by 20.5 million square meters, while the Anhui project is expected to increase production by 26.1 million square meters, totaling about 46.6 million square meters. This expansion of production is based on medium- to long-term expectations for the automotive industry to grow at an average global growth rate of 2.5% to 3%. We are confident in the development prospects and believe that these investments can increase the company's global competitiveness.

Q: According to 2023 data, what is Fuyao Glass's domestic and overseas market share respectively?

A: Fuyao Glass no longer specifically discusses market share data, because as long as it is above the industry average, it is enough to indicate competitiveness. As of 2022, the global market share is about 34%, and the domestic market share is close to 70%. Fuyao Glass's market share is about 10 percentage points higher than second place. Based on the growth of the global automobile industry, Fuyao's production growth rate was about 10.24%, higher than the growth rate of the global automobile industry of 8.2%, and its market share increased accordingly.

Q: The growth rate of Fuyao Glass ASP last year seems to be lower than expected. Can this be explained by the impact of falling prices? What's the outlook for 2024?

A: The impact of ASP last year was about 0.8 percentage points. This was mainly due to adjustments due to non-contractual factors. Since car manufacturers discuss prices every year, price adjustments are common practice in the industry. Generally speaking, profitability comes from comprehensive competitiveness. Compared with its peers, Fuyao Glass's profitability is remarkable. Looking at the background of the entire industry, there is no room for drastic price cuts. According to the long-term strategic partnership, Fuyao Glass and the car manufacturer will have some reasonable price adjustments. Despite this, there is no room for drastic price cuts, because the entire industry is not capable of such price cuts.

Q: What is the impact of Fuyao Glass on the domestic and foreign business structure?

A: For Fuyao Glass, the domestic and foreign business structure will indeed have a certain impact. The impact for the full year of last year was about 0.5 percentage points. In terms of product structure, changes in production of different models will also have an impact. Overall, ISPs are expected to increase by about 6 to 7 percentage points in the future. Over the next three to five years, we are optimistic about the development of our business foundation.

Q: What was the specific reason for the impairment in the fourth quarter of last year? What is the forecast for the profitability of the project in 2024?

A: The main causes of impairment are operational issues and differences between customer order plans and actual production. Normal operating losses were reduced by around 6 million euros last year, but overall losses remained. We prepared to depreciate our assets worth 20.6 million euros. After incorporating the impairment, we lost about 50 million 7.9 million last year. We plan to further reduce losses by improving internal performance and efficiency. Additionally, we are communicating with car manufacturers to resolve issues caused by differences in the planning chain and seek reasonable compensation.

Q: What are the prospects for offline businesses? What is the synergy between the aluminum parts business and the automotive glass business?

A: I think the outlook for our offline business is very positive from multiple perspectives. First, in terms of individual companies, the efficiency of offline business has improved. Second, from a domestic and international perspective, sales revenue increased by about 100% year-on-year in '23 last year. In particular, from the perspective of automobile joint ventures, the combination of our global layout and domestic and foreign business made them more aware of our business. Furthermore, the synergy between aluminum parts and automotive glass is also evident. Our own aluminum parts business has a lot to do with glass integration. Automobile manufacturers complained that in the past, the integration of aluminum parts, which were handled by other companies, was of poor quality and delivery times could not be guaranteed. We have improved the integrity of the entire industrial chain, increased the production of molds and aluminum alloy front ends, and made the business more recognized by automobile manufacturers. Therefore, it is expected that the aluminum parts business will not only continue to grow, but will also make a greater contribution to our performance.