We communicated with XYS on the impacts of coronavirus outbreak. XYS is subject to limited impact from delay of work resumption to 10 Feb, and the Company maintained solar glass production during CNY holidays. For downstream demand, we see mild impacts at current stage as solar glass price remains stable and XYS still has room to build up inventory to absorb potential impacts. New capacity may be subject to slight delay, which would limit additional supply in 1H20. Overall, we think XYS’ fundamentals remain largely intact, and those solid fundamentals support share price rebound potential.
- Maintaining production during CNY holidays. XYS delayed work resumption to 10 Feb following Anhui government’s instruction for coronavirus outbreak control. Based on continuous production and highly automated production lines, however, XYS maintained production during CNY holidays. According to mgmt., solar glass pricing in Feb will be decided after return to work, but at current stage, mgmt. expected pricing to remain stable. According to SCI99, one solar glass manufacturer in Jiangsu offered price quotation at RMB29.5/28/sq m for 3.2/2.0-2.5mm products on 3 Feb respectively, also implying stable pricing outlook despite the impact from coronavirus control.
- Downstream demand impacts look mild. XYS is not explicitly concerned about downstream demand, as 1) some downstream module manufacturers maintain production during CNY holidays, and 2) most module manufacturers will resume production from 3 Feb/10 Feb. According to mgmt., solar glass producers on average had 1-2 weeks inventory before CNY holidays, implying a tight supply situation. We believe XYS and peers have room to absorb 10-15 days output through inventory building, and we think downstream demand impact looks mild at current stage.
- New capacity may be subject to slight delay. XYS will have 4x1,000 tonnes new melting capacity commence operation in 2Q20 and 3Q20. We think those new production line may have slight delay due to delay work resumption and transportation control. We also observe some manufacturer delayed furnace ignition from cold repair to Apr. We believe new supply will be very limited in 1H20, implying solar glass supply to remain tight during the period.
- Fundamentals is largely intact, reiterate BUY. XYS’ share price declined 8.7% from historical high of HK$6.32 right before CNY holidays, due to the panic sale led by coronavirus outbreak. We think solar glass sector and XYS’ fundamentals remained largely intact at current stage, share price decline creates a good entry point. We reiterate BUY on XYS, TP maintains unchanged at HK$6.62.
