GF SEC: The main reason for the expansion of the cost gap in this round of photovoltaic glass may be due to capacity maintenance or modification.

GF SEC released a research report stating that the gross profit margin gap between leading companies and mid-level companies in 2024 will be 10%-20%. Compared to the downstream photovoltaic component industry, the cost gap in the photovoltaic glass industry remains relatively high, with leading companies having a significant cost advantage. From a cost perspective, in this cycle, the scale advantage of leading companies' kilns has decreased, and the increase in fixed costs brought about by cold repair has widened the cost gap. The decrease in capacity utilization caused by cold repair will lead to an increase in fixed costs (expenses and depreciation), which is expected to be the main factor in the widening cost gap in this cycle. Looking ahead, the landing of the fourth generation of large kilns is expected to restart the scale advantage of kilns, and the layout capability of leading companies in resources is expected to be further exerted and demonstrated. GF SEC's main points are as follows: The cost curve of the photovoltaic glass industry is steep, with leading companies having a significant cost advantage In 2024, the gross profit margin gap between leading companies and mid-level companies is 10%-20%. Compared to the downstream photovoltaic component industry, the cost gap in the photovoltaic glass industry remains relatively high, with leading companies having a significant cost advantage. Research framework for photovoltaic glass costs: in the previous cycle, kiln scale was the main source of cost disparity Kilns: Large kilns optimize finished products by reducing fuel consumption and increasing yield. Large kilns have a higher melting rate and higher production efficiency per unit area. Yield is mainly affected by cutting and defective products, with larger raw pieces produced by large kilns resulting in lower waste, higher yield. Know-how: The key technological difference lies in the melting stage of raw piece production, where leading companies excel in yield and consumption control at the melting end under the same environmental conditions. Raw material costs: Leading companies benefit from cost advantages by internally supplying low-iron quartz sand and purchasing natural gas on a large scale. Transport costs: Leading companies reduce transport costs through port hub layout and industrial clustering. Management and R&D expenses: Leading companies reduce management expenses with better operational efficiency and larger production capacity. Financial costs: First-tier companies, with stronger market positions and credit ratings, can raise funds through equity financing, bond issuance, etc., allowing them to adjust their asset-liability structure more flexibly and minimize financial costs. It is estimated that the average disparity in costs between leading companies and mid-level companies in the previous cycle was approximately 3.8 yuan per square meter In this cycle, the scale advantage of leading companies' kilns has decreased, and the increase in fixed costs brought about by cold repair has widened the cost gap. The rate of diffusion of kiln technology for photovoltaic glass is fast and, after 2022, there was a temporary decrease in kiln scale differences due to the ignition of kilns with a daily melting capacity of around 1,000 tons, but by the second half of 2024, most outdated capacity was cleared, thus gradually weakening the kiln scale advantage. The decrease in capacity utilization caused by cold repair will lead to an increase in fixed costs (expenses and depreciation), becoming a major factor in widening the cost gap in this cycle. It is estimated at the current point in time that the average cost gap between leading companies and mid-level companies is approximately 3.6 yuan per square meter. If the additional costs brought about by cold repair are excluded, the average cost advantage of leading companies is approximately 2.4 yuan per square meter. Subsequently, as companies gradually optimize personnel and equipment, fixed costs will return to normal levels, and without considering the additional costs of cold repair, the gap on the expense side will widen again. Leading companies, with the advantage of financing channels, are expected to continue to reduce their financial costs. Looking ahead, if the fourth generation of large kilns is successfully implemented, the resource deployment capability of leading companies is expected to be further demonstrated. Recommendations for target companies Zhuzhou Kibing Group (601636.SH) is strongly recommended due to its fast cost optimization speed, rapidly catching up with leading companies in the industry. The company's kiln scale and cost control capabilities are leading in the industry. Due to capacity ramp-up and upfront costs, the profit margin of some bases in 2024 is low. After completing capacity ramp-up, the gross margin for the first half of 2025 is close to that of leading companies. It is also recommended to pay attention to XINYI SOLAR (00968), Flat Glass Group (601865.SH,06865), and CSG Holding Co., Ltd.(000012.SZ). Risk warning Photovoltaic demand may not meet expectations, the progress of anti-dumping measures may not meet expectations, and major changes in photovoltaic industry policies may occur.