Fuyao Glass (3606 HK) A Clear Product Upgrade Path September 1, 2020 172

PSR Recommendation: ACCUMULATE Status: Maintained
Target Price: HKDHKD29

Investment Summary

Affected by the Epidemic, the Net Profit in H1 was -36% yoy Fuyao Glass released its 2020 semi-annual report: during the reporting period, the Company recorded revenue of RMB8.12 billion, down 21.1% yoy; net profit attributable to the parent company of RMB960 million, down 36% yoy; net profit attributable to the parent company excluding non-recurring items of RMB790 million, down 40.9% yoy; a revenue of RMB3.95 billion in Q2 only, down 26.2% yoy; net profit attributable to the parent company of RMB500 million, down 44% yoy; net profit attributable to the parent company excluding non-recurring items of RMB410 million, down 50% yoy. The main reasons for the negative results: (1) German FYSAM auto decorative project was in the integration period and suffered a loss of EUR26.17 million due to the impact of the epidemic; (2) Fuyao Glass American Factory suffered a loss of USD17.378 million due to the epidemic. Some of the headwinds were offset by (3) exchange gains of RMB128 million (RMB31 million in the same period of last year). Excluding the above factors, the total profit decreased by 16.19% yoy.

Capacity Utilization Declined, Depreciation and Amortization Increased, Dragging down the Gross Margin by 1.8 ppts In H1, the Company’s gross margin was 35.74%, down 1.79 ppts yoy, of which the gross margin of the automotive glass segment was 32.58%, down 1.9% yoy. Its main reasons include: Due to the impact of the epidemic, the production and sales volume of the automobile industry decreased yoy, the demand for orders from downstream customers decreased, resulting in insufficient capacity utilization. Meanwhile, the depreciation and amortization increased in proportion to the revenue, affecting the gross margin by 2.54 ppts. The gross margin of float glass segment was 36.3%, up 1.7 ppts yoy, mainly due to the price rise in the second quarter of float glass industry. In terms of expenses, the ratio of sales expenses increased by 0.8 ppts to 7.5% yoy due to the decline in revenue; due to the increase in depreciation and amortization and the rigidity of R&D expenses, the administration expense ratio increased by 2.7 ppts to 16.3% yoy. However, we also noted that the Company’s Q2 gross margin increased by 1 ppts and 2.7 ppts, respectively yoy and qoq. The main driving factor is the Company’s domestic business capacity utilization began to improve, and the proportion of high value-added products increased significantly.

About the author

Profile photo of Zhang Jing

Zhang Jing
Phillip Securities (HK)

Bachelor Degree in Tongji University of Engineering; Master Degree in East China Normal University of finance. Currently covering the automobile and air sectors. She has years of experience in investment research and is good at combining analysis for the companies with industry prospects.

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