20210302-招银国际-信义光能-00968.HK-Price_war_brewing_6页_1mb

Xinyi Solar (968 HK) Company Update Summary

Core Content

Xinyi Solar (968 HK) reported a significant increase in net profit for FY20, rising by 88.7% YoY to HK$4,561 million, which is close to the positive profit alert and in line with consensus estimates. Revenue grew by 35.4% YoY, driven by both sales volume and average selling price (ASP) increases. The company's solar glass segment accounted for 81.1% of FY20 revenue, highlighting its dominant position in the business.

The company is accelerating its capacity expansion, with effective melting capacity growth expected at 41.3% in FY20. In 2021E, the effective melting capacity is projected to increase by 43.5% YoY, leading to a 51.6% increase in solar glass sales. XYS plans to add 4x1,000t of new production capacity in 2022 and 12x1,000t from 2023 onwards, which could further boost production.

Despite strong earnings growth, the report warns of potential price wars in the PV glass market. In March 2021, PV glass prices declined by 4.8%, and there is a possibility of prices falling below RMB30/sq m, which could lead to a 25% price cut by year-end. Management expects pricing competition to intensify in 2022 due to the release of more new capacity.

Main Points

• Strong Earnings Growth:

  • FY20 net profit increased by 88.7% YoY to HK$4,561 million.
  • FY21E net profit is projected to grow by 75% YoY to HK$8,543 million.
  • FY22E net profit is expected to rise by 7% YoY to HK$9,112 million.

• Profitability:

  • Gross profit margin (GPM) for solar glass rose to 49.0% in FY20, up 16.9ppt from FY19.
  • The company is expected to maintain a 54.4% GPM in 2021E, driven by product mix shifts and demand for bifacial and large size modules.
  • Net profit margin increased from 26.6% in FY19 to 37.0% in FY20, and is expected to reach 42.5% in FY21E.

• Capacity Expansion:

  • XYS accelerated its capacity addition from 1,000t per quarter to 1,000t in Jan/Mar and the rest in 1H20.
  • Plans for 4x1,000t new production line in 2022 and 12x1,000t from 2023 onwards.
  • This expansion is expected to increase solar glass sales volume and revenue.

• Valuation Concerns:

  • The stock is currently trading at 17.6x forward P/E, suggesting that upside is largely priced in.
  • The target price (TP) remains HK$18.80, unchanged, with a +10.2% upside from current price (HK$17.06).
  • Downgrade to HOLD rating due to concerns over potential price declines in PV glass.

Key Financial Metrics

Risks and Upside Potential

• Upside Risks:

  • Better-than-expected policy support in the 14th FYP could benefit the solar sector.

• Downside Risks:

  • Faster-than-expected price declines in PV glass could impact profitability and valuation.

Shareholding and Performance

• Shareholding Structure:

  • Xinyi Group Glass Co Ltd: 24.4%
  • Yin Yee Lee: 32.1%
  • Free float: 43.5%

• Share Performance (12-month):

  • 183.5% absolute return
  • 153.1% relative to market

• Market Capitalization:

  • HK$15,286 million

• Trading Volume (3 months):

  • HK$1,065 million average turnover

Analyst Ratings and TP

• CMBIS Rating: HOLD
• Target Price (TP): HK$18.80
• TP based on 2021E P/E: 19.4x
• Current Price: HK$17.06
• Up/Downside: +10.2%

Conclusion

Xinyi Solar has demonstrated strong earnings growth in FY20, driven by increased sales volume and ASP. The company is expanding its production capacity rapidly, which may lead to a 51.6% increase in solar glass sales in 2021E. However, the potential for a price war and uncertainty in PV glass pricing may put pressure on valuation. The stock is currently trading at 17.6x forward P/E, and the HOLD rating reflects the analyst's view that the upside is largely priced in. Investors should consider the risks associated with price declines and policy support in their decision-making process.