We invited the management of China Glass to share with investors the industry outlook and business development last week. Investors’ questions were mainly about the industry supply and the Company’s restructuring plan. Key takeaways: (1) Effective capacity of float glass (for the industry) will likely drop over the coming years due to the need of cold repair, which will support float glass price; (2) In contrast to the potential reduction of effective capacity for the industry, China Glass capacity growth has been on a good track; (3) Restructuring plan is largely confirmed. CNBM Group’s float glass capacity will likely be injected into China Glass.
Float glass price to be supported by the potential decline in effective supply. It is estimated that around 270-280 production lines are in operation at present. Out of these capacities, around 100 lines started operation in 2011 following the launch of RMB 4 trillion stimulus package. Majority of these lines will need to suspend production for cold repair in the foreseeable future. This, together with the strict government control over the new capacity approval, will likely result in a decline in the effective capacity over the coming three years.
Capacity growth on good track. As at end-May, China Glass had a daily float glass capacity of 5.1kt. After the commencement of two new lines (total 1kt) in Jun, the capacity reaches 6.1k tonnes. The capacity is expected to further increase to 6.8kt after including Longtai project (700t) by end-Jul.
Restructuring roadmap largely confirmed. CNBM Group has three listed platforms, namely China Glass, Triumph Science & Technology (600552 CH, NR), Luoyang Glass (1108 HK / 600876 CH, NR). Going forward, China Glass will likely consolidate all the float glass business under CNBM Group. CNBM Group has a total of 6kt of daily capacity of float glass, a similar scale to that of China Glass.
Our take. In 1Q21, revenue from glass products surged 73% YoY to RMB793mn, driven by 40% YoY increase in sales volume. On the back of strong float glass price (+51% YoY in 1H21), China Glass is set to benefit from a strong operating leverage. We expect profit surprise, progress on M&A and restructuring will serve as major share price catalysts this year. China Glass is currently trading at 1.4x 2020 P/B, a significant discount to 4.5x of Xinyi Glass (868 HK, NR).