XYS realized net profit of HK$4,561mn in FY20, up 88.7% YoY, close to the high end of positive profit alert and in line with consensus estimates. Mgmt. guided accelerating capacity expansion pace, leading to 41.3% effective melting capacity growth. However, as with increasing new capacity, we expect a price war brewing within the year, which may bring valuation pressure to XYS. In 2021E, we expect net profit to increase by 87.3% YoY on the back of PV glass sales volume and ASP growth. Trading at 17.6x forward P/E, we believe upside is largely priced in. We revised FY21/22E earnings projection by +7.1%/-0.5% respectively to HK$8,543mn/9,112mn, and maintain our TP unchanged at HK$18.80. Downgrade to Hold rating.
- FY20 net profit surged 88.7% YoY. Revenue increased by 35.4% YoY mainly driven by sales volume and ASP increase. We estimate solar glass sales in terms of sales areas increased by 40.4% YoY, and ASP increased by 8.6% YoY. Major expenses remained in good control, and the Company managed to reduce finance costs by 37.1% YoY in FY20. Net profit read HK$4,561mn, up 88.7% YoY, in line with consensus estimates. XYS declared a final dividend of 17 HK cents, maintaining full year dividend payout of 46%.
- Top tiered profitability. GPM of solar glass was up 16.9ppt YoY to 49.0%, reflecting XYS’ outstanding costs control capability. We believe increasing penetration of bifacial and large size module will enhance XYS’ advantages, as XYS is leading the pace in launching new products to meet market demand. In 2021E, we expect PV glass ASP to increase 7.1% YoY, which will likely to sustain even higher GPM of 54.4%.
- Accelerating capacity expansion pace. Mgmt. guided effective melting output to increase 43.5% YoY through releasing new capacity at a faster pace. In view of tight PV glass supply, XYS accelerated capacity addition pace from 1,000t for each quarter to 1,000t in Jan/Mar and the remaining by 1H21. Based on the revised output guidance, we estimate PV glass sales area will increase by 51.6% in 2021. XYS plans another 4x1,000t new production line in 2022, and prepares 12x1,000t from 2023 onwards.
- Brewing for a price war. Mgmt. expects PV glass price to resume normal from unexpected high level. In Mar, PV glass price exhibited a mild decline by c.4.8%(3.2mm from RMB42/sq m to RMB40/sq m). XYS saw chance for PV glass price to fall below RMB30/sq m, implying potential price cut of 25% by year-end. For pricing outlook in 2022, since more new capacity to release output, mgmt. expects pricing competition may become fierce.
- Valuation may be curbed by pricing outlook. Based on mgmt. guidance update, we revised FY21/22E earnings projection by +7.1%/-0.5% respectively to HK$8,543mn/9,112mn. Our projection indicates an earnings growth of 75% in 2021E. In view of potential uncertain PV glass pricing outlook, however, we expect XYS’ valuation will be curbed. Trading at 17.6x 2021E PER, we think XYS’ share price upside is largely priced in. We maintain our TP unchanged at HK$18.80, reflecting 19.4x PER in 2021E. Downgrade to HOLD rating.
- Risks: 1) upside: better-than-expected policy support in the 14th FYP; 2) downside: PV glass price declines at faster-than-expected pace.
