FUYAO GLASS(600660)：3Q23 RESULTS NICELY BEAT ON OVERSEAS AUTOMOTIVE GLASS REVENUE

　　In 3Q23, Fuyao’s total revenue rose 16.7% YoY to RMB8.8bn, nicely beating our prior estimate of RMB8.3bn, thanks to better-than-expected automotive glass revenue abroad (both OEM and ARG sides). Despite FX loss was wider than expected, net profit of RMB1.3bn also beat expectations; if excluding FX factor, pre-tax profit surged 35.8% YoY in 3Q23 mainly driven by gross margin recovery. The 3Q23 performance of overseas plants was mixed as US bases presented virtuous operating circle with solid revenue growth and decent operating margin, whereas SAM unexpectedly missed with revenue sharply shrank QoQ and widening loss. We expect SAM unlikely to attain full- year loss target of EUR20m, but we reckon domestic aluminium trim business has been on track YTD. Despite H-share prices outperformed in HK market over the past three months, we reckon the results beat may further shift investors’ interest towards Fuyao which enjoys a dominant position in auto glass market with stabilised competition landscape. Maintain BUY and raise H-share TP from HK45 to HK$50 (20x 2024E P/E).
　　Key Factors for Rating
　　3Q23 revenue nicely beat driven by better-than-expected automotive glass revenue in overseas market from both ARG and OEM sides. In 3Q23, Fuyao’s total revenue rose 16.7% YoY to RMB8.8bn, nicely beating our prior estimate of RMB8.3bn thanks to better-than-expected revenue for auto glass from both ARG market and OEM customers abroad. By region, we estimate Fuyao’s domestic auto glass revenue sustained double-digit YoY growth in 3Q23, higher than China PV sales growth of 3.4% YoY for the period; overseas auto glass revenue gained faster growth YoY in 3Q23 than 5.4% YoY in 1H23, within which revenue from OEM side accelerated to 35% YoY in 3Q23, against 23.8% YoY in 1H23, while ARG revenue also recovered significantly, following the 40- 50% YoY slump in 1H23 amidst the choppy destocking action.
　　Operations at overseas plants mixed as the SAM surprisingly missed but US bases maintained solid growth. Regarding US manufacturing bases, its revenue increased c.20% YoY in 3Q23 to US$208m with the operating profit margin staying high at c.12%. In contrast, operations at SAM surprisingly missed as its 3Q23 revenue unexpectedly declined 35% QoQ to EUR29m, against over EUR40m per quarter in 1H23. As a result, the operating loss exacerbated to EUR13.4m, against the seamless loss reduction trend in 1H23. Since operating loss at SAM has reached EUR24.6m in 9M23, we expect SAM unlikely to achieve the full-year loss target of EUR20m for 2023. Even so, the company’s aluminium trim business in domestic market has been on track, and is expected to produce synergy effects with SAM and automotive glass business in coming years.
　　Gross margin sustained uptrend in 3Q23 thanks to the improving capacity utilisation and further decline of raw materials and freight costs. The gross margin recovered more than 1ppts YoY and QoQ to 36.3% in 3Q23, a relatively high level over the past two years, driven by increasing utilisation rate along the swifter-than-expected revenue growth, and the further reduction of sodium carbonate and freight costs. Considering the margin deterioration at SAM, we estimate gross margin of both domestic and export business performed better than expected.
　　Earnings Forecast and Valuation
We nudge up our net profit forecasts for 2023-25E by 1-2% to RMB5.4bn /6.1bn/6.9bn to reflect our higher overseas revenue and gross margin assumption, despite higher-than-expected FX loss in 3Q23. Now its H shares are trading at 16.8x 2023E P/E and 14.8x 2024E P/E, below the average level of c.18x over the past five years.
Over the past three months, Fuyao’s H-share stock price performed better than other HK-listed components and major OEM stocks, but we reckon 3Q23 results beat in terms of both revenue and earnings may further shift investors’ interest towards Fuyao which enjoys a dominant position in the auto glass market with stabilised competition landscape, in stark contrast to OEM segment where fierce competition and consolidation is underway. We maintain BUY rating and raise our H-share TP from HK$45.00 to HK$50.00, based on 20x 2024E P/E (vs. 18x 2024E P/E previously).
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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。