Report
Duncan Chan

CSCI-Glass-Xinyi Glass (868 HK):Value-added products the rising growth driver - 20180808

Value-added products the rising growth driver

 

  • Xinyi Glass (“Xyglass”) posted a solid set of interim results with net profit growth of 22.7% YoY, slightly ahead of our expectation, driven by a record high float glass margin.
  • We believe there is room for improvement in the company’s overall profitability in the 2H of the year which tends to see lower soda ash prices and remarkable architecture capacity utilisation improvement.
  • We believe the share was clouded by the news relating to the U.S. tariffs on Chinese glass products and the China 531 solar industry policy, but we see buying opportunities as the stock is currently trading at 8.5x PER, which is below its historical mean. We reiterate our price target of HKD13.0, representing a target multiple of 12.0x FY18E PER. Maintain BUY.

Record high float glass margin reported for the interim, benefiting from higher selling prices and an improved product mix, driving the company’s blended GPM to 37.7% during the six months period. Specialty float glass products, which command c.20-25% price premium to ordinary glass products, accounted for 39% of total segment turnover in the period. On the contrary, auto- glass margin was dragged by higher production cost due to rising float glass prices as well as RMB appreciation.

Solid three-leg growth drivers. Management is optimistic about its existing business growth model, citing (1) the company has recently acquired from the local government a production facility with a 2x750tpd daily capacity, which belongs to ex-Hua’erRun’s permit, to strengthen its Eastern China market coverage with a focus on Value-Added Products (“VAPs”), (2) increased aftermarket coverage and alliance with auto insurance companies in China, (3) strong bargaining power of its laminated auto-windshield glass business in the overseas market to facilitate price hikes in offsetting the impact from higher tariffs, and (4) rising average capacity utilisation rates as Low-E glass sales orders have continued to increase YTD.

Strong balance sheet. The Beihai and Zhangjiagang projects, which are scheduled to commence operation by mid-2019 and end-2019, according to the company’s development plan, would lead to additional designed capacity of 3,200tpd and 1,500tpd respectively. Management is confident that the company would be able to accomplish its three year development plan of adding new float glass production capacity by 50% by end-2020. Based on the latest capex plan (HKD2.9bn for FY18E and HKD3.2bn pa for FY19E and FY20E), with the focus on investing in projects in Guangxi, Jiangsu and Malaysia, we expect Xyglass targets to maintain the ND/E ratio stable at below 30.0% over the next two years.

Maintain BUY with price target maintained at HKD13.0. The stock is trading at 8.5x FY18E PER. We believe the current valuation is undemanding as compared to its historical range. Based on the 48% dividend policy, we expect XyGlass to achieve a FY18E yield of 5.6%. And in light of XyGlass’s positive growth prospects, leveraging on its focus on VAPs in driving growth, we believe there is room for re-rating of its valuation going forward.

Underlying
Xinyi Glass Holdings Limited

Xinyi Glass Holdings is engaged in the production and sales of a range of glass products, including automobile glass, construction glass, float glass, solar glass, and other glass products used in commercial and industrial applications. In addition to the glass products, Co. also produces automobile rubber and plastic components. Co.'s customers include companies in the business of automobile glass manufacturing, wholesale and distribution, automobile repairs, motor vehicle manufacturing, construction and furniture glass manufacturing, float glass wholesale and distribution, and solar module manufacturing.

Provider
CSCI
CSCI

中信建投国际研究部是中信建投证券香港子公司中信建投国际下属研究部门,负责香港上市公司、行业和宏观研究。我们的研究产品和服务包括行业报告、公司、宏观、常规日报、新闻摘要、分析员路演、上市公司非交易路演和反向路演 以及策略会。

Analysts
Duncan Chan

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