XYS delivered FY19 earnings of HK$2,416mn, in line with ours and consensus estimates. Market is clearly more concerned about impacts to solar glass sales from coronavirus outbreak in the overseas areas. Mgmt. revealed that PV glass pricing faced no pressures yet, as industry has average inventory at only 20 days, still in a normal range. To factor in potential demand shock due to COVID-19, we trim FY20E solar glass ASP/sales volume by 5.4%/3.6%. Though we cut FY20E earnings by 12.4% to HK$2,992mn, we think XYS’ earnings growth outlook remains intact. Our DCF TP is cut 4.6% to HK$6.31. Maintain BUY.
- FY19 earnings surged 29.1% YoY. Strong earnings was boosted by 1) PV glass volume increased by 27.1% YoY, and 2) we estimate PV glass ASP increased 4.9% to RMB26.7/sqm. Other than good sales figures, XYS also had expenses in good control as admin costs and selling and distribution costs both read significant YoY decline (see Figure 1). Net profit was HK$2.416mn with an EPS of HK$30.3 cents. XYS declared final dividend of HK$8.5 cents (FY19 totaled HK$14 cents), representing 46.2% payout ratio and 3.0% yield.
- Delay new capacity launching schedule. Given construction delay and potential demand uncertainties, mgmt. decided to delay launching new capacity by one quarter, and expected the first production line to commence in June. As such, effective melting capacity growth is trimmed from 37.3% to 26.1%. However, as XYS has thinner 2.0mm bifacial PV glass shipment, we believe sales growth measure in area will mitigate melting capacity loss. We estimate overall sales area will decline by only 3.6% vs. our previous estimates.
- Reduce ASP outlook for potential demand impacts. As COVID-19 turned severe in Europe and US, we expect XYS may suffer demand disruption due to overseas virus control measures. We cut FY20E ASP assumption by 5.4% from RMB28.0/sq m to RMB26.5/sq m to factor in potential weak demand. We are not too concerned about XYS’ profitability, since the Company may be compensated by better-than-expected cost structure from lower gas and soda ash prices.
- Long-term profitability remains intact. In view of demand uncertainties leading to weaker ASP outlook, we cut our FY20E earnings by 12.4% to HK$2,992mn. Our revised earnings reflects 22.3% YoY growth. Based on XYS’ solid fundamentals, we believe the Company’s long-term profitability remains intact. Our DCF TP is trimmed from HK$6.62 to HK$6.31. Maintain BUY.
- Key risks: PV glass price risks; long term lasting of COVID-19 control.
