CSG HOLDING(000012)：IMPAIRMENT PROVISION DRAGS PROFITS IN 2021;DEEP PROCESSING TO GROW IN 2022

　　2021 results largely in line with the firm’s preannouncement
CSG Holding announced 2021 results: Revenue rose 28% YoY to Rmb13.63bn and attributable net profit grew 96% YoY to Rmb1.53bn. In 4Q21, revenue fell 7% QoQ to Rmb3.38bn and attributable net profit dropped 88% QoQ to Rmb19.5mn. Excluding the impact of the asset impairment loss of Rmb283mn, the firm’s 4Q21 attributable net profit was Rmb303mn, largely in line with its preannouncement.
　　Flat and engineering glass businesses: Sales volume, price, and profit of float glass faced challenges in 4Q21; sales volume of engineering glass increased in 2021. CSG Holding’s revenue of flat, photovoltaic (PV), and engineering glass rose 27% YoY to Rmb11.1bn in 2021; in 2H21, it grew 7% HoH to Rmb5.7bn. Sales volume: In 2021, sales volume of flat glass (including float and PV glass) edged down 1% YoY to 2.95mnt. Sales volume of engineering glass gained 15% YoY to 39.5mn sqm. Prices: Data from National Bureau of Statistics (NBS) indicates that pre-tax ASP of float glass increased 14% HoH to Rmb2,740/t in 2H21 (down 22% QoQ to Rmb2,402/t in 4Q21). Profit: Gross margin (GM) of the firm’s flat and engineering glass rose 4.8ppt YoY to 36% in 2021; in 2H21, it decreased 5ppt YoY to 34% due to higher raw material cost. In 2H21, ASP of soda ash, petroleum coke, and liquefied natural gas (LNG) increased 68%, 35%, and 47% HoH.
　　Electronic glass business: Production and sales maintained high growth in 2021; GM dropped HoH in 2H21. CSG Holding’s annual output of electronic glass jumped 450% YoY to 0.27mnt, with sales volume soaring 374% YoY to 0.27mnt in 2021. The unit price decreased 63% YoY to Rmb6,948/t, as the firm priced its products according to sales prices of its rivals. GM of electronic glass increased 5ppt YoY to 35% in 2021; in 2H21, it dropped 9ppt HoH to 31%. CSG Holding’s profit missed our expectation due to rising fuel cost and the significant increase in the cost of metal minerals (raw materials for the newly invested KK6 cover plates).
　　The provision of asset impairment reached about Rmb1.14bn in 2021, and recognized impairment loss totaled about Rmb980mn. CSG Holding announced that it plans to carry out technological upgrading in its factory in Qingyuan; therefore, it made a one-off asset impairment provision. In addition, its asset impairment provision for its solar business reached around Rmb700mn. The firm booked asset impairment losses of Rmb980mn in total for 2021.
　　Free cash flow increased YoY thanks to the float glass business. Benefiting from strong demand for float glass, the firm’s operating cash flow to revenue ratio maintained growth of 111% YoY in 2021. Its free cash flow increased 28% YoY to Rmb2.1bn in 2021.
　　Trends to watch
　　Cost pressure weighed on earnings of electronic glass; PV glass capacity to ramp up in 2022. We expect CSG Holding’s project in Qingyuan to start operating in 2Q22 and to double the firm’s cover plate capacity. However, considering the higher-than-expected prices of raw materials such as lithium for cover plate KK6, we think the firm’s earnings will likely face continued pressure even as it raises product prices to pass through costs. In addition, management has stated plans to put four 1,200t/d PV glass production lines in Fengyang and two in Xianning into operation in 2Q22. It also announced plans to build two new 1,200t/d PV glass production lines in Beihai, Guangxi.
　　Financials and valuation
　　We keep our 2022 EPS forecast unchanged and lower our 2023 EPS forecast 13% to Rmb1.16 to reflect the impact of volatile float glass prices. The stock is trading at 7x 2022e and 5x 2023e P/E. We maintain an OUTPERFORM rating and considering the falling market valuation, we cut our target price 21% to Rmb10, implying 11x 2022e and 9x 2023e P/E with 62% upside.
　　Risks
　　Demand from housing completion weaker than expected; progress in capacity expansion disappoints; changes in equity structure.
【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。

   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。