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Price Hike Likely In Oct 21

We held a conference call with XYS. Price hike is likely in Oct 21 given the current low inventory levels and sufficient demand. At present, the impact of power curtailment would be mainly from the cost side. However, if the power curtailment is prolonged, solar glass demand this year would likely be impacted due to rising prices and supply shortage of upstream materials. Maintain BUY with unchanged target price of HK$20.10.

WHAT’S NEW

  • Low inventory levels supported by solid demand. The industry is seeing a mom decline in inventory levels despite greater product supply in the market. This reflects solid demand which has continued after the demand rebound in Jul-Aug 21 (from the lack of in Apr-Jun 21). There is a possibility that the demand in 4Q21 could be delayed to 1Q22 (before the Chinese New Year holidays). Overseas demand is good as the order cycle is longer comparatively, making it less price sensitive. In terms of thin glass, Xinyi Solar (XYS) expects a sequential improvement in 2H21. Industry wise, double glass solar panel sales accounted for 25-30% of total solar panel sales in 1H21 which is expected to reach 35% in 2H21. The company said that its proportion of thin glass sales should be higher than industry levels as they are the first mover in commercialising thin glass.
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  • Impact of power curtailment mainly to be from cost side. The power curtailment would not directly affect the company’s production, with production mainly using natural gas and LNG. Instead, the impact would be from the cost side. The cost of soda ash surged to a historical high of Rmb3,300/ton from Rmb2,600/ton two weeks ago. XYS said that, backed by sufficient demand, it can pass along the cost hikes to consumers, thus the profit margin would not be affected in the short term. However, it highlighted that if the power curtailment is prolonged, solar glass demand would be affected as well due to rising prices and supply shortage of raw materials. Despite this, XYS will still fare better than its peers given its wide supply network and existing inventories for main materials.
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  • ASP likely to escalate further in Oct 21. XYS said that the ASP for a 3.2mm solar glass is at Rmb26-27/sqm this week, with certain orders recorded at Rmb27-28/sqm, up from Rmb24-26/sqm in early Sep 21. It also expects the price of solar glass to hike in Oct 21, supported by low inventory levels and sufficient demand in Oct 21.
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  • Effective annual capacity to rise 38% yoy in 2021. Four new production lines (1000 tons/day of capacity each) commenced operation in Jan/Mar/Jul/Sep 21 respectively. The first three lines are running at full capacity while the fourth will roll out the first batch in Oct 21. In 2022, XYS will add eight new lines (1000 tons/day of capacity each) in Jiangsu and Anhui. It is currently focused on domestic expansion as: a) there is a barrier to onsite inspection and physical negotiations overseas due to the pandemic, b) the expansion period overseas is longer, and c) China may continue to tighten control on the production of the energy intensive industry.