JINJING SCIENCE&TECHNOLOGY STOCK(600586)：1Q23 RESULTS IN LINE;WATCH NEW ENERGY GLASS BUSINESS

　　1Q23 results largely in line with our expectations
　　Jinjing Science & Technology Stock announced its 1Q23 results: Revenue rose 6.8% YoY to Rmb1.9bn, attributable net profit fell 39.5% YoY to Rmb88mn, and recurring attributable net profit declined 41.2% YoY to Rmb84mn. The firm’s 1Q23 results are in line with our expectations.
　　Glass prices stayed weak; architectural glass segment remained under pressure. Data from the National Bureau of Statistics shows that the tax-inclusive ASP of float glass fell 22% YoY （but rose 4% QoQ） to Rmb1,734/t. Capacity utilization rate in downstream industries was still recovering after the Chinese New Year （CNY） holiday in 1Q23, putting the sales volume of float glass under pressure.
　　Soda ash prices remained robust in 1Q23. The firm has 1.35mnt of soda ash production capacity. The industry-wide ASP of heavy soda ash rose 3.6% QoQ to Rmb2,793 in 1Q23. We believe: 1） new large-scale soda ash production capacity that is yet to be put into operation; 2） a net increase of 2,700t/d in daily melting capacity of float glass in 1Q23 （daily melting capacity of new and resumed production lines at 7,350t/d and that of production capacity under cold repair at 4,650t/d）； and 3） an additional 8,700t/d of photovoltaic （PV） glass daily melting capacity all have the potential to create incremental soda ash demand.
　　The firm’s PV glass yield slightly improved, driving a marginal improvement in its earnings. The firm’s photovoltaic （PV） glass production facilities are concentrated in Ningxia, China, and it also provides backsheet glass for First Solar overseas. We expect earnings of the business to improve marginally thanks to improved product yield and better cost control. We believe the firm’s transparent conductive oxide （TCO） glass orders may mostly come from perovskite companies in the short term.
　　GM edged down YoY and QoQ; net operating cash flow recovered. The firm's GM fell 2.8ppt YoY （or 2.6ppt QoQ） to 13.4% in 1Q23. Despite limited room for improvement in glass prices and elevated costs, the firm’s blended GM only fell slightly, possibly thanks to improved earnings of soda ash and new energy glass. The firm’s net operating cash flow rose 8.8% YoY to Rmb399mn in 1Q23, and its cash-to-revenue ratio rose 6.3ppt YoY to 80.3%. Capex reached Rmb378mn, indicating modest cash pressure.
　　Trends to watch
　　Demand from completed property projects to recover mildly; float glass prices to rebound. Based on data from the CICC real estate research team, we estimate gross floor area （GFA） completions to recover mildly by more than 10% YoY in 2023. We believe the destocking at glass producers over the past few weeks signaled, to some extent, the recovery of downstream demand, which we expect to accelerate during the peak season in 2H23. We think loss-making glass makers may resume production after the glass prices rebound above their production costs. We expect price hikes of float glass in the near term.
　　Modest earnings contribution from TCO glass in the near term; sales prospects promising thanks to effective quality control. We believe the firm will likely receive more orders for TCO glass as domestic perovskite companies advance the construction of their GW-level production lines. The firm is still discussing overseas cooperation with First Solar, which may boost the firm’s orders once an agreement is reached. We are optimistic about perovskite companies’ progress on GW-level production lines in 2023 and related catalysts for the firm’s earnings and valuation.
　　Financials and valuation
　　Given the firm's disclosure that supply may come under pressure due to its peers’ shift to ultra-white glass and colored glass production, we cut our price forecasts for the firm’s technical glass products, and lower our 2023 and 2024 EPS forecasts by 16% and 10% to Rmb0.49 and Rmb0.72. The stock is trading at 17x 2023E and 12x 2024E P/E. However, given possible recovery in float glass demand and catalysts from perovskite companies, we maintain OUTPERFORM and our TP at Rmb10.7, implying 22x 2023E and 15x 2024E P/E with 29% upside.
　　Risks
　　Completed property projects, production capacity under cold repair, or TCO glass orders lower than expected; environmental rectification not meeting the requirements.
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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。