PV glass prices were lifted by another 16-24% in late Sep, reflecting strong PV module demand. We think PV glass supply is extremely tight, as some smaller manufacturers are offering higher price quotation with real market demand. Based on current PV glass melting capacity in operation, we estimate current PV glass output is equivalent to above 13.4GW/mo and 161GW/yr. In 4Q20, there is no additional supply, while the earliest new capacity is likely to come mild in late Jan. We lifted PV glass ASP assumption by 4.6%/8.7% in 2020/2021E, which we expect to drive XYS’ earnings up by 14.0/23.4% to HK$3,851mn/6,058mn, respectively. Our DCF TP on XYS is lifted by 32.5% to HK$15.5. Maintain BUY.
- PV glass price is lifted by another RMB4-6/sq m in Sep. Main stream 3.2mm PV glass price now reaches RMB35-37/sq m, while price for thinner 2.5/2.0mm model is lifted even more to RMB31/28 per sq m respectively. The pricing adjustment reflects ~16.7-24% hike to previous pricing, which was mainly driven by thrilling downstream model demand, while major costs of PV glass remains largely flat in Sep.
- Strong demand to sustain high price in 2021E. We expect XYS will have significant margin expansion to above 50% in 4Q20, and we think the ultra-high profitability is likely to sustain for the majority of 2021E. According to SCI99, there were 47 furnaces with 28,060 tonnes daily melting capacity in operation by end-Sep, equivalent to annualized 161GW PV glass supply according to our estimate. With reference to current PV glass capacity addition plan, we expect effective PV glass supply will still be tight if demand growth hits faster than 15% in the first 9M in 2021E. We expect high PV glass price will likely to sustain in at least 1H21.
- Raise FY20/21E earrings by 14.0%/23.4%. Based on recent price hike, we lifted XYS’ PV glass ASP by 4.6%/8.7% in 2020/21E, and we think higher ASP will boost GPM of the Company’s PV glass sales to 44.8%/52.1% respectively. Our earnings projection is revised up by 14.0%/23.4% to HK$3,851/6,058mn. Our FY20-22E EPS projection is 13.6%/33.0%/27.4% higher than consensus estimates.
- Lift DCF TP by 32.5% to HK$15.5; maintain BUY. Our DCF TP reflects 32.2x/21x FY20/21E PER. We think our TP for XYS is in reasonable range in a sector up cycle comparing with 25-30x peers valuation range. Given solid fundamental supports, we expect XYS’ strong momentum to continue.
