When the “National Nine Rules” were introduced, most of the major analysts believed that when the bull market started, the market took the lead and fell in honor of the first. Hong Kong A-share small and medium capitals rushed around, and individual stocks were frantically murdered. Fortunately, large-cap stocks carried the banner of resisting falling. As the leader in the Hong Kong stock glass sector, Fuyao Glass (03606) still recorded a slight increase in the three trading days.
The performance of Xinyi Glass and Follett Glass in the same sector is slightly poor. Judging from the trend (annual line), Fuyao Glass is also the brightest in the sector, maintaining an upward trend. The gap between this and the other two companies is obvious. In fact, the three glass manufacturers mentioned above are all leaders in their respective fields. Fuyao Glass is the leading automotive glass, Xinyi Glass is the leading float glass, and Follett Glass is the leading PV glass leader. However, the valuation given by the market is different. Fuyao Glass's valuation is significantly higher than the other two companies.
Fuyao Glass's performance was better than the other two companies. The Zhitong Finance App learned that according to financial reports, Fuyao Glass's revenue in 2023 was 33.161 billion yuan, up 18.02% year on year, and shareholders' net profit was 5.629 billion yuan, up 18.37% year on year. Both revenue and profit were higher than Xinyi Glass and Follett Glass. However, Follett Glass's growth performance was better in 2023, with revenue and net profit increasing by 39.21% and 30%, respectively.
Looking at the results of the past three years, Fuyao Glass and Follett Glass both showed strong performance. The compound growth rates of revenue and net profit were 18.53%, 57.17%, 33.76%, and 14.4% respectively, while Xinyi Glass performed poorly. The above two indicators were -6.2% and -32%, respectively. The main reason for the difference in the performance of the three glass manufacturers is the difference in business composition. Demand for photovoltaic glass and automotive glass is good, while float glass is affected by the downturn in real estate, and the demand environment is poor.
Fuyao Glass is mainly composed of automotive glass and float glass, with revenue contributions of 75.89% and 14.49% respectively in 2023; Xinyi Glass is mainly composed of automotive glass, float glass and architectural glass, with revenue contributions of 22.32%, 65.18% and 12.5% respectively; Follett Glass is mainly composed of photovoltaic glass and float glass, with revenue contributions of 91.4% and 1.6% respectively. Revenue is highly concentrated on photovoltaic glass.
It is worth noting that different businesses have different profit margins, and different companies have different profit levels in the same business. For example, in the automotive glass business, the gross margins of Fuyao Glass and Xinyi Glass were 30.07% and 14.46% respectively; in the float glass business, the gross margins of Fuyao Glass, Xinyi Glass, and Follett Glass were 27.45%, 26.5%, and -3.61%, respectively. The core business of Fuyao Glass and Xinyi Glass has a high degree of overlap. The former's growth and profit can weigh down the latter, while Follett's core is photovoltaic glass (gross margin of 22.25%), which dominates the market.
Looking at overall profit performance, Fuyao Glass's gross profit margin, net margin, and ROE are higher than those of its peers. Although Follett Glass has the highest growth level due to the contribution of photovoltaic glass, its profitability is also weak. In terms of ROE, Fuyao, Xinyi and Follett were 17.9%, 15%, and 12.4% respectively in 2023. In addition, China Glass also produces float glass and photovoltaic glass, but its scale is small and its competitiveness is weak. It recorded a loss in 2023, with a net loss rate of 7.7%.
Fuyao Glass not only leads in growth and profitability, but also leads in operating capacity. The net cash flow from operating activities maintains a steady double-digit increase every year, and the cash on its accounts is far higher than that of its peers. In 2023, its cash equivalent was 13.351 billion yuan, 6.71 times and 2.02 times that of Xinyi Glass and Follett Glass, respectively. Fuyao Glass had a significant scale effect. As of 2023, the production and sales ratio of automotive glass and float glass was 97.7% and 104% respectively. Demand for float glass is still strong in a weak market environment, and its strong cash level has the ability to accelerate the pace of production expansion with a first-mover advantage.
Compared with the other two companies, Fuyao Glass has been expanding frequently recently. In December of last year, the company plans to set up a wholly-owned subsidiary in Fuqing City, Fujian Province, to invest 3.25 billion yuan to build an automobile safety glass project and expand the production scale of automobile safety glass by about 20.5 million square meters; in January of this year, it plans to establish three wholly-owned subsidiaries in Hefei City, Anhui Province, and invest 5.75 billion yuan to build an automobile safety glass project, auto parts glass project, and high-quality float glass production line.
From an industrial perspective, the price of glass raw materials has been relatively stable since 2023, and has declined somewhat this year as it continues to be removed from storage, but the downstream demand boom has rebounded. Automobile glass and photovoltaic glass are preparing to increase prices. Automobile glass is benefiting from the rapid development of the NEV industry. Xiaomi's entry into the market has accelerated fuel truck replacement, and product technology iterations have also accelerated the vehicle replacement cycle. Photovoltaic glass has benefited from “carbon neutrality”. In 2023, 216.88 GW of new PV installations were added, with a year-on-year increase of 148.1%, and will continue to increase in 2024.
Fuyao Glass took the lead in expanding production with financial advantages. The performance is expected to be released after the project is put into operation. Follett Glass is the leading photovoltaic glass in Hong Kong stocks, with a total production capacity of 20,600 tons/day in 2023. The Anhui Phase IV project and the Nantong project are expected to be started and operated this year, and plans to invest in the construction of photovoltaic glass kilns in Indonesia, and the growth certainty is also quite high. However, the market gave Fuyao Glass a market value of HK$105.6 billion, while Follett was only HK$40.4 billion.
In fact, judging from the performance alone, both targets are of high quality, but in terms of dividends, compared to Follett Glass, they are slightly petty. Fuyao Glass has accumulated 10 dividends since 2015, with a dividend amount of 24.756 billion yuan, with a dividend ratio of 63.5%, while Follett Glass has paid dividends 11 times, with a dividend amount of 3,038 billion yuan, with a dividend ratio of 29.14%. In addition, the market value of Xinyi Glass is lower than that of Follett Glass, but the cumulative dividend ratio also reached 33.4%.
In terms of investment choices, Fuyao Glass has the strength to be bullish and resistant to falling. On the one hand, it has performance support, deterministic growth, and generous dividend payments, which are favored by long-term investors. On the other hand, investment banks are optimistic and institutional leaders, such as receiving increased holdings from shareholders such as BlackRock and Schroders Plc Schroders PLC. Follett also has performance expectations, but dividend payouts are less attractive. The buyback was announced this year, but it has not been implemented until April. Recently, many shareholders such as Damo and Xiaomo have reduced their holdings, and the short to medium term trend is not optimistic.
Up to now, Fuyao Glass's PB value is 3 times, PE (TTM) is 17 times, and Xinyi Glass and Follett Glass are 1 times, 6.5 times, 1.7 times, and 13 times, respectively, in these two indicators. Although the valuation is higher than that of its peers, Fuyao Glass is still the most sought after in the market due to multiple factors such as performance, dividends, increased shareholders' holdings, and investment banks' optimism.