The entire solar PV value chain continues to suffer from piling inventories and uncertain demand outlook. XYS, despite its leadership in the solar glass segment, is no exception. While solar glass prices are poised to rise in March, we are not yet convinced about the sustainability of the price hike as thousands of tonnes of solar glass furnaces are waiting to be ignited. We expect XYS’s solar glass business to continue bleeding in 2025 as effective supply (including those ready-to-run furnaces) remains excessive. We lower our SOTP- based TP to HK$3.00, implying 0.9x 2025E P/B.
　　Key Factors for Rating
　　2024 results recap. XYS changed its reporting currency to RMB along with the results announcement, and reported net profit of RMB1,008m for the full year, down 74% YoY. Excluding one-off impacts from impairment of furnaces & inventory, FX losses and withholding tax totaling RMB919m, its 2024 results were still 50% lower YoY. XYS took down several of its furnaces during 2024 to adapt to the S/D dynamics, and its capacity in operation declined to 23,200 tonnes per day (tpd) by end-2024 from 27,000tpd at end-1H24.
　　Our take on pricing and margin outlook. As the industry has shut down an unprecedented c.25,000tpd solar glass furnaces since 2H24, which is more than the entire additions in 2023, solar glass supply has effectively declined to a point to warrant destocking after the Chinese New Year. This has prompted a rise of asking price for March by as much as RMB2.0/sqm for 2.0mm products. With inventory standing at 33.8 days, we see the price hike more as an emergency bleeding control rather than S/D-driven. If solar PV demand could not sustain its recovery trend towards the mid-year, and multiple furnaces get (re)ignited in the following weeks, we expect inventory to climb again to depress price. Break- even would remain difficult even for leading solar glass players in 2025, in our view, absent the help of unexpected demand strength.
　　Key Risks for Rating
Higher/lower-than-expected solar PV demand; More stringent/loosening policy on solar glass capacity; Higher/lower-than-expected raw material costs.
　　Valuation
　　XYS is showing capex discipline to preserve cash and avoid overinvestment in the industry downturn, which should bode well for its balance sheet. This will help it to emerge strong again when smaller players are squeezed out. In the short term, any policy announcement on the supply side may improve investors’ sentiment, but difficult to lift companies’ profitability unless it materially reduces supply, in our view. We maintain HOLD rating for XYS and cut our SOTP- based TP to HK3.00.