Fuyao Glass The bank gave Fuyao a target price of HK$27.35, which corresponds to 17/13.5 times estimated P/E for 2017/2018, and maintains an “overweight†rating.
The proportion of high value-added products increased for another half of 2017. Fuyao Glass achieved operating revenue of RMB 8.714 billion, up 15% year-on-year; net profit attributable to parent company was RMB 1.386 billion, a year-on-year decrease of 4.84%, and basic earnings per share of RMB 0.55.
The decline in company performance was mainly caused by the exchange loss caused by the appreciation of the renminbi. In the first half of the year, the exchange loss was 170 million yuan, compared with the exchange gain of 200 million yuan in the same period last year. If net currency effects are excluded, net profit for the first half of the year will increase by 17.9% year-on-year. The company's auto glass domestic revenue growth was faster than the industry average, which was 11.8%. Overseas auto glass growth recorded a faster growth rate of about 18% due to the low base.
Fuyao Glass's comprehensive gross profit margin during the period was approximately 43%, which was the same as that of the same period of last year. Among them, the gross profit margins of auto glass and float glass increased by 0.03 and 6.16 percentage points year-on-year, respectively, which was mainly driven by the proportion of high value-added products such as edging products, Hud head-up display glass, sound-insulating glass, and hydrophobic glass.
In addition, with the increasing trend of automotive consumption upgrades, automotive glass has become lightweight, energy saving, environmental protection, intelligence, and integration have been rapidly developing, and the added value of automobiles has been continuously improved. With its technological leadership in the industry, Fuyao continues to increase investment in R&D in the above five categories and increase the proportion of high-value-added products.
Phillip Securities stated that its R&D investment in the first half of the year increased by 16% to 389 million yuan, accounting for 4.46% of revenue. At the same time, the sales and management fee rate was basically flat, reflecting the strong cost control of the company.
The US factory began to turn a profit and said that after the first phase of production of the US plant at the end of last year, the second phase of the 2.5 million additional projects in the second half of 17 will be completed. The total capacity of the US factory is expected to reach 5.5 million sets, the total number of Fuyao Glass. The capacity will increase by 20%.
In addition, float glass factories in Germany and Russia are also planning. Although the company’s US plant still lost 10.44 million U.S. dollars in the first half of the year, it has already narrowed by close to 60% compared to the same period last year, and it has achieved a profit of 495,000 U.S. dollars for the first time in June. It is expected that it will contribute profit in the whole of 17 years.
Phillip Securities pointed out that after many years of exploration and cultivation, Fuyao's overseas layout has finally begun to usher in a harvest period. At present, the company’s export business accounts for more than one-third of the total, and its scale has been increasing year by year. Overseas assets have reached RMB 12.1 billion, accounting for 39.4% of the total assets. The impact of foreign exchange earnings on the company's book profits will become a factor that cannot be ignored. The company is also considering a certain hedging operation, which is also a test that the company will face when it grows into a multinational giant.
On the risk side, the bank pointed out that the company's stock price may be affected by the continuing sluggish demand for cars, rising raw materials, and appreciation of the renminbi. On the contrary, the rebound in car demand and the depreciation of the renminbi will also become catalysts for its stock price.
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