FUYAO GLASS(600660)：REVENUE AND CORE EARNINGS SET TO REFRESH QUARTERLY HIGH IN 2Q24-格隆汇

机构：中银国际
研究员：LOU Jia/Olivia NIU/Catherine SUN

　　We expect Fuyao’s total revenue to deliver YoY growth of high-teens to RMB9.4bn-9.5bn in 2Q24, mainly driven by auto glass revenue growth of over 20% YoY. Against the stiffening price competition in domestic market, management reiterated the full-year additional supplier rebates target at 1ppt or below. In spite of possible higher rebates required by local OEMs in 2Q24, we expect gross margin to stabilise or even edge higher QoQ, thanks to improving utilisation rate and decrease in raw material costs. Overall, we expect adjusted net profit (excluding FX) to surge 45-50% YoY to RMB1.7-1.8bn in 2Q24. We deem its valuation premium is well justified by its stronger- than-peers and highly visible earnings outlook this year, as well as enhanced dominant position in global automotive glass landscape over the mid-to-long horizon. Maintain BUY.
　　Key Factors for Rating
　　Automotive glass revenue set to sustain 20%+ YoY growth in 2Q24 driven by consistent growth in domestic and overseas business. For domestic market, we anticipate Fuyao’s auto glass revenue to deliver mid-to- high-teens YoY growth in 2Q24, outpacing overall market growth driven by both rises in auto glass amount used per vehicle and ASP of glass per sqm. For overseas business, we project stronger YoY growth of 25%+ by virtue of surging US base contribution, robust export to European OEM customers, and restoring exports demand from ARG market helped by lower comparative basis in 2Q23 amid ARG market destocking. Overall, we estimate Fuyao’s 2Q24 total revenue to sustain YoY growth of high-teens to a new quarterly record of RMB9.4bn-9.5bn.
　　2Q24 gross margin likely to stabilise or edge higher QoQ with improving utilisation and decrease in raw material costs, which may offset the additional rebates. Vast majority of auto components suppliers witness wider annual price reduction and extra supplier rebates this year amid stiffening price competition in the domestic market. Management reiterated the full-year additional supplier rebates guidance at 1ppt or below (relatively flattish with 2023 at 0.8ppt), adding that it may vary by quarter. Given extra rebates came in at 0.45ppt in 1Q24, we reckon the company could stay nimble for adjustments to cater OEMs cost-cut needs with manageable adverse impacts on margin profile. In spite of possible higher rebates required by local OEMs in 2Q24, we expect gross margin to stabilise or edge higher QoQ as the improving utilisation rate and decrease in raw material costs (i.e. heavy sodium carbonate) could offer sufficient buffer to offset profit squeezes from OEMs.
　　Overseas business bodes well for earnings upsides in 2Q24 and 2H24. YTD, both revenue and operating profit in US base presented robust growth driven by the price hike and escalating usage rate on the back of mounting order intakes and tight capacity supply. Before the expected massive release of new capacity that scheduled from 2025 onwards, we expect the robust auto glass demand in US market against tight capacity will continuously drive utilisation rate upwards. For SAM, we anticipate the potential claims of recoveries from OEM customers may determine the extent of loss reduction.
　　2Q24 core earnings may further refresh quarterly record high. Given the higher comparative basis with larger amount of FX gains (c.RMB718m) booked in 2Q23, we anticipate 2Q24 net profit may see YoY decline from RMB1.9bn in 2Q23. But if excluding FX factor, we expect adjusted net profit to surge 45-50% YoY to RMB 1.7-1.8bn in 2Q24, the refreshed quarterly high.
　　Earnings Forecast and Valuation
　　We raise our revenue forecasts for 2024E-2026E by 1-2% RMB39.8bn/ 46.0bn/53.3bn, respectively. Meanwhile, we lift our net profit forecasts for 2024E-2026E by 3%-5% to RMB6.6bn/7.5bn/8.5bn to reflect softer margin pressures for domestic business and potential earnings upside from overseas business. Accordingly, we tweak up our TP to HK$55.00/RMB58.00, by adopting 20x/23x 2024E P/E.
　　Fuyao’s H-share prices rose over 20% YTD, one of the best performers within our HK-listed coverage. At present, its H-shares are trading at 16.8x/15.3x 2024/2025E P/E. We deem its valuation premium is well justified by its stronger-than-peers and highly visible earnings outlook this year, and enhanced leadership in global auto glass landscape over the mid-to-long horizon. Maintain BUY.