The Zhitong Finance App learned that Haitong International released a research report stating that it lowered the target price of Follett Glass (06865) from HK$28.43 in 23 to HK$27.25, and the gross margin for 24-25 years was 2.3 pct/1.2pct. The estimated operating revenue for 2024-2026 was 278.89/331.67 billion yuan, respectively, and net profit to the mother was 41.69/51.80/6.50 billion yuan, maintaining the “superior to the market” rating. Although the growth rate of new photovoltaic glass production capacity slowed in 2023, the overall demand release fell short of expectations, and prices fluctuated mainly at low levels.

Haitong International's main views are as follows:

The company's profitability increased steadily, and net profit returned to mother +30% for the whole year.

In 2023, the company achieved total revenue of RMB 21,524 billion, an increase of 39.21% over the previous year. Mainly due to the sharp drop in solar module prices in 2023, which stimulated a sharp increase in installed demand for downstream modules, the company benefited from the release of additional production capacity and reached a new high in operating income. At the same time, due to the easing of cost pressure on some raw materials and the gradual balance of market supply, the company achieved net profit attributable to shareholders of the parent company of 2,760 billion yuan, an increase of 30% over the previous year. In the fourth quarter of 2023, the company achieved total revenue of 5.639 billion yuan, an increase of 32.80% over the previous year; achieved net profit of 791 million yuan, an increase of 27.91% over the previous year, and a steady increase in profitability. The company plans to distribute a dividend of 0.38 yuan per share, with a dividend ratio of 52.57%, an increase of about 30 pcts over the previous year.

Production and sales of photovoltaic glass increased, and gross margin decreased slightly.

In 2023, the company achieved PV glass revenue of 19.677 billion yuan, a year-on-year increase of 43.82%; photovoltaic glass production was 1,212 billion square meters, up 44.52% year on year; sales volume reached 1.22 billion square meters, up 49.52% year on year, and inventory decreased by 29.28% year on year. In 2023, the company's comprehensive gross margin was 21.80%, a year-on-year decrease of 0.27pct. Among them, the gross margin of photovoltaic glass was 22.45%, a slight decrease of 0.87pct year-on-year. The company's relatively high soda ash price in 2023 ensures good profitability.

Production capacity is expanding at an accelerated pace, and the scale remains industry-leading.

By the end of 2023, the company's total production capacity is 20,600 tons/day. It is expected that the Anhui Phase IV project (4 1200t/d kilns) and the Nantong project (4 1200t/d kilns) will be ignited and operated this year, with a total daily melting volume of 9,600 tons/day. The production capacity is expected to reach 30,200 tons/day in 2024, an increase of about 47%. In addition, the company plans to invest in the construction of photovoltaic glass kilns in Indonesia to meet the demand for photovoltaic glass in different countries and regions. The company's photovoltaic glass production capacity is expanding at an accelerated pace, which is expected to significantly increase shipments in 24-25 years, and maintain industry leadership in scale.

Risks: 1) Demand for PV installations falls short of expectations; 2) Risk of fluctuations in raw materials and fuel prices.