Investment positives
　　We initiate coverage of Luoyang Glass-H with an OUTPERFORM rating and a target price of HK$16.50 (20x 2022e P/E) and coverage of Luoyang Glass-A with an OUTPERFORM rating and a target price of Rmb29.70 (45x 2022e P/E).
　　Why an OUTPERFORM rating?
　　PV glass demand increasing, driven by global PV installation and penetration of double-sided modules. The European Union (EU) recently released the REPowerEU Plan, which contains targets and plans for solar photovoltaic (PV) installation. We expect global installed PV capacity to rise from 230GW in 2022 to 300GW in 2023, with a CAGR of nearly 30%. The penetration of double-sided modules should also boost PV glass demand, which we think will rise to 16mn tonnes in 2022 with a CAGR of over 35% over 2021-2023.
　　Expanding capacity to increase market share; enjoys advantage in raw material procurement with support of China National Building Material Group. We believe high-quality capacity and lower raw material costs are the two competitive advantages in the PV glass industry. Luoyang Glass’s daily ultra-white rolled glass melting capacity is 3,230 tonnes, which we think could rise to 5,200-5,300 tonnes as of 2022. We expect the firm’s market share to rise to No.3 in China once this round of capacity expansion is completed. Luoyang Glass leverages its parent company’s (China National Building Material Group) resource advantages in procurement of quartz sand and soda ash. Its self-sufficiency rate of quartz sand has reached 50%. It is also cooperating with mines to lower procurement costs.
　　Exploring photothermal glass; parent company working on cadmium telluride materials; product diversification creates opportunities. Luoyang Glass has made breakthroughs in the R&D of photothermal glass products - e.g. its 2mm photothermal glass product indicators have met industry standards. In the field of cadmium telluride materials, Luoyang Glass was entrusted in April to manage a 55% stake in CNBM (Chengdu) Optoelectronic Materials, a subsidiary of the parent company and a leader in the Chinese thin-film battery industry. We expect this to facilitate resource sharing within China National Building Material Group and create synergies, enabling Luoyang Glass to benefit from the development of thin-film batteries.
　　How do we differ from the market? We believe the firm’s extensive experience in PV glass manufacturing ensures the production of high-quality glass products. Its photothermal glass capacity should also help the firm benefit from the development of photothermal power stations.
　　Potential catalysts: The capacity ramp-up of silicon materials in the next 3-6 months.
　　Financials and valuation
　　Our EPS forecast is Rmb0.66 in 2022 and Rmb1.05 in 2023, with a CAGR of 60%. We initiate coverage of Luoyang Glass-A with an OUTPERFORM rating and a target price of Rmb29.70 (45x 2022e P/E), offering 27% upside. Luoyang Glass-A is trading at 35x 2022e and 22x 2023e P/E. We initiate coverage of Luoyang Glass-H with an OUTPERFORM rating and a TP of HK$16.50 (20x 2022e P/E), offering 27% upside. Luoyang Glass-H is trading at 17x 2022e and 11x 2023e P/E.
　　Risks
　　Change in industry policies; fluctuation of raw material prices; new construction projects disappoint; tightening of financial credit.