When the "National Nine Articles" were introduced, most of the major analysts believed that when the bull market started with reference to the laws of history, the market came to the first place, and the small and medium-sized funds of Hong Kong A-shares were rushing around, and individual stocks were crazy to kill. Fortunately, large-cap stocks carried the banner of resistance to decline, and as the leader of the glass sector of Hong Kong stocks, Fuyao Glass (03606) still recorded a slight increase in three trading days.
The performance of Xinyi Glass and Follett Glass in the same sector is slightly worse, and from the trend (annual line), Fuyao Glass is also the brightest in the plate, maintaining an upward trend, which is obviously different from the other two. In fact, the above three glass manufacturers are all leaders in their respective fields, Fuyao Glass is the automotive glass leader, Xinyi Glass is the float glass leader, and Follett Glass is the photovoltaic glass leader, but the valuation given by the market is different, and the valuation of Fuyao Glass is significantly higher than the other two.
According to the financial report, the revenue of Fuyao Glass in 2023 will be 33.161 billion yuan, a year-on-year increase of 18.02%, and the net profit of shareholders will be 5.629 billion yuan, a year-on-year increase of 18.37%, and the revenue and profit are higher than those of Xinyi Glass and Follett Glass. However, Follett Glass will perform better in 2023, with revenue and net profit increasing by 39.21% and 30% year-on-year respectively.
Judging from the performance of the past three years, the performance of Fuyao Glass and Follett Glass is relatively strong, with the compound growth rate of revenue and net profit of 18.53%, 57.17%, 33.76% and 14.4% respectively, while Xinyi Glass has performed poorly, with the above two indicators of -6.2% and -32% respectively. The difference in the performance of the three glass factories is mainly due to the different business composition, with better demand for photovoltaic glass and automotive glass, while float glass is affected by the real estate downturn and the demand environment is poor.
Fuyao Glass is mainly composed of automotive glass and float glass, with a revenue contribution of 75.89% and 14.49% in 2023, totaling more than 90%, Xinyi Glass is mainly composed of automotive glass, float glass and architectural glass, with a revenue contribution of 22.32%, 65.18% and 12.5% respectively, and Follett Glass is mainly composed of photovoltaic glass and float glass, with a revenue contribution of 91.4% and 1.6% respectively during the period, and the revenue is highly concentrated in photovoltaic glass.
It is worth noting that different businesses have different profit margins, and different companies have different levels of profitability for the same business. For example, in the automotive glass business, the gross profit margins of Fuyao Glass and Xinyi Glass were 30.07% and 14.46% respectively, while in the float glass business, the gross profit margins of Fuyao Glass, Xinyi Glass and Follett Glass were 27.45%, 26.5% and -3.61% respectively. The core business of Fuyao Glass and Xinyi Glass has a high degree of overlap, the former can overtake the latter in terms of growth and profitability, while Follett core is photovoltaic glass (gross profit margin of 22.25%), which is dominant.
In terms of ROE, Fuyao, Xinyi and Follett will be 17.9%, 15% and 12.4% respectively in 2023. In addition, China Glass, which also produces float glass and photovoltaic glass, is small in scale and weak in competitiveness, recording a loss in 2023 with a net loss margin of 7.7%.
Fuyao Glass is not only leading in growth and profitability, but also leading in operational capabilities, maintaining a double-digit stable growth in net cash flow from operating activities every year, and the cash on the books is much higher than that of its peers, with cash equivalents of 13.351 billion yuan in 2023, which are 6.71 times and 2.02 times that of Xinyi Glass and Follett Glass respectively. As of 2023, the production-to-sales ratios of automotive glass and float glass are 97.7% and 104% respectively, and the demand for float glass is still strong in a weak market environment, and its strong cash level has the ability to accelerate the pace of production expansion with a first-mover advantage.
In December last year, the company planned to set up a wholly-owned subsidiary in Fuqing City, Fujian Province, investing 3.25 billion yuan in the construction of automotive safety glass projects, expanding the production scale of about 20.5 million square meters of automotive safety glass, and in January this year, it planned to set up three wholly-owned subsidiaries in Hefei City, Anhui Province, investing 5.75 billion yuan in the construction of automotive safety glass projects. The auto parts glass project and the high-quality float glass project expanded the production of about 26.1 million square meters of automotive safety glass and two high-quality float glass production lines.
From the industrial side, the price of glass raw materials has been relatively stable since 2023, and it has fallen back this year under the continuous destocking, but the downstream demand boom has rebounded. Automotive glass and photovoltaic glass are brewing price increases, automotive glass benefits from the rapid development of the new energy vehicle industry, Xiaomi enters the market to accelerate the substitution of oil vehicles, product technology iteration also accelerates the replacement cycle, and photovoltaic glass benefits from "carbon neutrality", with 216.88GW of new photovoltaic installed capacity in 2023, a year-on-year increase of 148.1%, and a high growth trend will be maintained in 2024.
Fuyao Glass took the lead in expanding production with financial advantages, and the performance of the project is expected to be released after it is put into operation, while Follett Glass is the photovoltaic glass leader in Hong Kong stocks, with a total production capacity of 20,600 tons per day in 2023, and the Anhui Phase IV project and Nantong project are expected to be ignited and operated this year, and plan to invest in the construction of photovoltaic glass kilns in Indonesia, with high growth certainty. However, the market gave Fuyao Glass a market value of HK$105.6 billion, while Follett only gave HK$40.4 billion.
In fact, judging from the performance alone, the two targets are very high-quality, but in terms of dividends, they are slightly stingy compared with Follett glass. Since 2015, Fuyao Glass has paid dividends 10 times, with a dividend amount of 24.756 billion yuan, with a dividend ratio of 63.5%, while Follett Glass has paid dividends 11 times, with a dividend amount of 3.038 billion yuan and a dividend ratio of 29.14%. In addition, the market value of Xinyi Glass is lower than that of Follett Glass, but the cumulative dividend ratio has also reached 33.4%.
On the one hand, it is supported by performance, has certain growth, and generous dividends, which is favored by long-term investors, and on the other hand, investment banks are optimistic about intensive research reports, and institutions are leading the group, such as BlackRock and Schroders PLCSchroders PLC. Follett also has performance expectations, but the attraction of dividends is weak, this year's announcement of repurchase, to April has not been implemented, recently by the big and small Mo and other shareholders to reduce their holdings, the short-term trend is not optimistic.
Up to now, the PB value of Fuyao Glass is 3 times, the PE (TTM) is 17 times, and Xinyi Glass and Follett Glass are 1 times, 6.5 times, 1.7 times and 13 times respectively in these two indicators. Although the valuation is higher than that of its peers, Fuyao Glass is still the most sought after by the market due to multiple factors such as performance, dividends, shareholder increases and investment banks.