PV glass price is lifted by ~RMB4/sq m from Sep 2020. The price hike reflects ~15% increment to 3.2mm PV glass model. Both the price hike timing and the range exceed our expectations. According to our communication with XYS, the pricing adjustment mainly reflects tightened PV supply on the back of thrilling downstream demand from PV module manufacturers.
- PV glass price is lifted by RMB3-4/sq m from Sep. Main stream 3.2mm PV glass price now reaches RMB30/sq m, while price for thinner 2.5/2.0mm model is also lifted to RMB27/24/sq m respectively. The pricing adjustment reflects ~15% hike to 3.2mm model, which would be more than enough to cover 3-4.5% costs impact from soda ash price hike (Soda ash price surged 20-30% in Aug). We expect XYS will have significant margin expansion with pricing adjustment in the remaining four months of 2020.
- Pricing adjustment is demand driven. PV glass supply has continued to tighten from Aug. Downstream PV module demand was once uncertain due to fluctuated product pricing along the supply chain caused by supply disruption from Poly-Si material. In late Aug, stabilizing PV cell price has strengthened market confidence, and we think PV model price at around RMB1.5-1.6/watt is acceptable to downstream PV farm developers. We think market demand recovery will further tighten PV glass supply and trigger price hike. We expect PV glass price to stay strong in 2H20.
- 2021E supply to remain tight. XYS delayed releasing its 2x1k tonnes capacity to 2021, due to COVID-19 impacts and recent flood in Anhui province. According to our estimates, we expect PV demand to increase 33% in 2021E, while effective PV glass supply would be less than 20%, implying PV glass supply to remain tight in 2021E. We believe that will likely sustain current high price or even further price rise in 2021E.
- Raise TP by 17.0% to HK$11.70; maintain BUY. We raise our PV glass ASP assumption up by 0.8%/2.2%/0.8% in 2020-22E. Our net profit projection is lifted by 3.7%/6.3%/2.2% to HK$3,378/4,911/6,054mn respectively. We observed valuation expansion on China solar sector from Jun-Aug on improving earnings outlook and solid 1H20 earnings release. We think sector valuation experienced a re-rating from 15-20x forward P/E to 25-30x. Our DCF TP is raised by 17.0% to HK$11.70, reflecting FY20/21E 28.1x/19.5x PER. In a sector up cycle, we believe XYS’ valuation is still attractive. Maintain BUY.
