类别:公司 机构:中国国际金融股份有限公司 研究员:Qing GONG/Chengning LI/Yan CHEN/Jiachen LIU/Maoda YANG 日期:2022-05-06

  1Q22 results in line with our expectation

    CSG Holding announced 1Q22 results: Revenue fell 7% YoY (down 18% QoQ) to Rmb2.79bn, and attributable net profit was Rmb384mn, implying EPS of Rmb0.12 (down 33% YoY, but up 1,868% QoQ due to the low base in 4Q21 that resulted from an impairment provision). The firm’s results are largely in line with our expectation.

      1Q22 revenue slid. In 1Q22, revenue dropped 7% YoY (down 18% QoQ) to Rmb2.79bn. Pre-tax ASP of float glass fell 8% QoQ to Rmb2,222/t in 1Q22 (data from National Bureau of Statistics), due to pressure on real estate developers, and the impact of the COVID-19 pandemic on construction and logistics. Demand for float glass was sluggish in 1Q22. However, glass prices remained high compared to 1Q21, driven by high cost and limited inventory.

      High cost weighed on GM; net margin improved QoQ. ASP of dense soda ash soared 71% YoY to Rmb2,541/t in 1Q22, and prices of pipeline gas also increased. In addition, prices of lithium materials (raw materials of electronic glass) ramped up. As a result, the firm’s overall GM dropped, but its cost pressure eased marginally compared to 1Q21. In 1Q22, its GM rose 0.7ppt QoQ and dropped 9ppt YoY to 28.3%.

      Sound expense control; earnings growth resumed. The 1Q22 expense ratio fell 1ppt QoQ to 8.9%, and losses from asset and credit impairment narrowed by Rmb425mn. Net margin increased 13.2ppt QoQ to 13.8%.

      Capex increased; free cash flow faced pressure. In 1Q22, operating cash flow to revenue ratio rose 7.4ppt YoY to 106.8%, and net operating cash flow dropped Rmb239mn YoY to Rmb102mn due to higher cash payment resulted from raw material price hikes. The firm’s capex grew Rmb550mn YoY to Rmb784mn in 1Q22, due to increased investment in new photovoltaic (PV) glass production lines. Its free cash flow fell Rmb780mn YoY to -Rmb682mn in 1Q22.

      Trends to watch

      Differentiating float glass products; awaiting demand recovery.

      Tepid demand from the real estate sector and high cost of raw materials has weighed on the operation of most glass manufacturers in China, in our view. CSG Holding continues to differentiate its product portfolio by increasing the portion of high-end products such as ultra-clear glass, super-thick glass, and super-thin glass. We think earnings will continue to be optimized. In addition, we expect demand to recover after COVID-19 is brought under control, and pro-growth policies are implemented. Float glass supply may also decrease due to the maintenance of some production lines in the industry. As a result, we think glass prices will likely rise moving forward.

      Ample room for organic growth; deep processing capacity to expand in 2022-2023. The firm will likely put large amounts of PV glass production lines into operation in 2022, in our view. We expect four 1,200t PV glass production lines in Fengyang and one 1,200t production line in Xianning to start operating before end-2022. In addition, we think the 650t capacity under maintenance in Dongguan will likely resume operation in 2022 and reach its full capacity of 7,300t/d in 2023. In our opinion, profit margin of the KK6 cover plate business will likely come under pressure in 2022, due to rising raw material prices and tepid demand amid the slowdown of economic growth and COVID-19 resurgence. However, its cover plate projects in Hebei and Qingyuan will likely start operating in 2022 and reach full capacity in 2023. We expect the firm to offset the impact of raw material price hikes by expanding deep processing capacity.

      Financials and valuation

      We keep our 2022 and 2023 EPS forecasts at Rmb0.87 and Rmb1.16. The stock is trading at 6.3x 2022e and 4.8x 2023e P/E. We maintain OUTPERFORM and cut our TP 17.2% to Rmb8.28 due to lower median of sector valuation. Our TP implies 10x 2022e and 7x 2023e P/E with 50.0% upside.


      Demand from housing completion weaker than expected; progress in capacity expansion disappoints; changes in equity structure.