KIBING GROUP(601636)：FLOAT GLASS BUSINESS TO BOTTOM OUT;NEW BUSINESSES MAY CONTRIBUTE HIGHER EARNINGS

Preannounced earnings down 65.8-70.5% YoY
Kibing Group preannounced its 2022 results, estimating that attributable net profit fell 65.8-70.5% YoY to Rmb1.25bn-1.45bn. In particular, its recurring attributable net profit might fall 68.5-72.8% YoY to Rmb1.13bn-1.31bn. The results slightly missed our expectations due to the sluggish demand for float glass.
Trends to watch
Weak demand weighed on float glass prices in 4Q22. In 4Q22, the average number of days for fulfilling deep-processing orders fell by 1.1 days QoQ to 15.4 days. We attribute this decline to two reasons. First, weak demand and poor capacity utilization rates downstream (resulting from cold weather in northern China) weighed on float glass prices. According to the National Bureau of Statistics, float glass's ASP (tax included) fell 3% QoQ in 4Q22 to Rmb1,680/t. Second, costs remained high. The industry ASP of soda ash and petroleum coke fell 4% and 1% QoQ to Rmb2,701/t and Rmb5,089/t in 4Q22, which were still high.
However, Kibing Group is a float glass leader with high-quality products and wide range of product categories. It mainly targets the southern China market. At the end of 2022, demand for rush production in southern China was higher than in northern China, which we think further highlights the firm's advantage in sales-to-output ratio. Furthermore, the firm stocked up on cheap crude fuels last year, lowering costs and strengthening expense controls relative to its peers.
Float glass business may bottom out: Supply-demand gap will likely drive up prices in 2023. We expect housing completion to recover in 2023, driven by ample projects in the pipeline and policies to supportive of property deliveries. The CICC real estate team expects floor space completed to rise 5% YoY in 2023. As for supply, we think the industry will still have production lines under cold repair before demand turns around. Two production lines have been under cold repair since January, with a total daily capacity of 900t/d.
Furthermore, the number of resumed production lines may be limited. We estimate that the full-year demand may be about 2% higher than the supply, pushing up float glass prices. Kibing’s Heyuan and Zhangzhou projects completed cold repairs, resumed production last year, and will be able to operate at full capacity this year. The firm also announced that leading soda ash producers are likely to increase production capacity substantially during May-June 2023, which we think will ease pressure on glass costs.
New PV glass and electronic glass businesses to make breakthroughs and boost earnings growth. We think the firm's PV glass business made limited earnings last year as it had only just started production, and was attempting to improve the product pass rate and adjust its production structure. The firm expects its production lines in Zhangzhou and Ninghai to come online this year, and we expect its nominal production capacity to rise 218% YoY to 7,000t/d. Its production capacity may exceed 4,000t/d for the full year based on the firm's released production schedule.
The firm currently has 130t/yr of electronic glass production capacity. It plans to invest Rmb780mn to build two new production lines in Shaoxing and to list its subsidiary, Kibing Electronic glass, on the ChiNext Board. We expect the earnings from new businesses to grow in 2022.
Financials and valuation
As float glass did not perform strongly last year, we lower our price assumptions, cut our 2022 EPS forecast by 14% to Rmb0.5/sh, maintain 2023 EPS forecast at Rmb0.88/sh, and introduce 2024 EPS forecast of Rmb0.94. The stock is trading at 14x 2023e and 13x 2024e P/E. We maintain OUTPERFORM. Considering the valuation recovery of the float glass sector and the boost from expectations for new businesses to valuation, we raise our TP by 36% to Rmb16.3 (18x 2023e and 17x 2024e P/E), offering 30% upside.
Risks
Disappointing cold repair of float glass production lines; disappointing recovery of housing completion; disappointing progress of deep-processing business.
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   【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。