XYS delivered outstanding 1H20 results. Net profit surged 47.6% YoY to HK$1,406mn mainly on 1) PV glass sales volume growth; 2) costs saving from favorable soda ash and natural gas price; and more importantly 3) thinner PV glass with higher GPM accounted for higher proportion in product mix. We think XYS’ stunning performance will continue in 2H20, supported by China and overseas PV installation release, stable costs structure, and continuing improving product mix with increasing bifacial module penetration. We raised our FY20-22E earnings by 8.9%/3.0%/10.0%. Our DCF valuation rolls over to FY21E with TP lifted 58.5% to HK$10.0. Maintain BUY.
- Stunning 1H20 results. Revenue grew 15.7% YoY to HK$4,623mn, led by PV glass sales surge of 19.3% YoY to HK$3,488mn. Gross profit was up 43.8% to HK$2,189mn. Major expense remained in well control, as key items such as administrative/finance expense exhibited YoY decline of 5.3% /25.3% respectively. Net profit/EPS was HK$1,406mn/HK$17.4 cents, up 47.6%/44.1% YoY. XYS declared interim dividend of HK$8.5 cents, representing 48.9% dividend payout based on 1H20 earnings.
- PV glass sales was the key growth driver. XYS realized outstanding PV glass sales despite the impacts caused by COVID-19. Mgmt. attributed the good results to 1) ~10% costs saving from both soda ash and natural gas costs; 2) higher ASP realized; and 3) product mix shift towards 2.0mm PV glass as bifacial module becomes popular. GPM of the segment expanded 11.6ppt YoY to 38.9%, as a result. We estimate material and energy saving brought around 4.5% costs saving, and product mix change led to majority of remaining margin expansion. We expect XYS to maintain its momentum in 2H20 on the back of thin glass sales mix to increase from ~25% to 35%.
- Postponing Wuhu capacity to 2021. In Guangxi Beihai, XYS had 1k tonne melting capacity commenced operation in Jun, and planned to have another to commence in Aug. For Wuhu capacity, the Company postponed releasing new production lines to 2021 due to changing production line design to coop with larger size module, and flood in Anhui also caused construction delay. In 2021-22, XYS plans to add 1k melting tonne in each quarter to accelerate expansion pace to meet surging downstream demand.
- Raise TP by 58.5%; maintain BUY. We trim revenue forecast by 10.1% in FY20E but raise earnings estimates due to improving GPM outlook. We lift FY20-22E earnings forecast by 8.9%/3.0%/10.0% to reflect XYS’ outstanding PV glass profitability with product mix change. Our DCF TP is raised by 58.5% to HK$10.00, reflecting FY20/21E 24.2x/17.6x PER. In a sector up cycle with booming demand, we think our valuation is justified. Maintain BUY rating on XYS.
