Guotai Haitong maintains "buy" rating on XINYI GLASS (00868), float glass toughness exceeds expectations.

Guotai Haitong released a research report stating that it maintains a "buy" rating for XINYI GLASS (00868) and raises the target price to HK$17.73. The company's 2025 annual report shows that the company achieved a total revenue of 20.829 billion yuan, a year-on-year decrease of 6.70%, with a net profit attributable to the parent company of 2.729 billion yuan, a year-on-year decrease of 19.00%. Calculated back, in the second half of 2025, the company achieved a revenue of 11.008 billion yuan, a year-on-year decrease of 7.32%, and a net profit attributable to the parent company of 1.716 billion yuan, a year-on-year increase of 80.06%, exceeding expectations. The bottom toughness of float glass exceeded expectations, automotive glass maintained a high gross profit margin, and entered the cash cow zone. Guotai Haitong's main points are as follows: The profitability of the top float glass leader is significantly better than expected, and the industry has officially entered a period of accelerated cold repair. In 2025, the company's float glass revenue was 11.5 billion yuan, with a gross margin of 18%. Calculated back, in the second half of 2025, the company's float glass revenue was 6.1 billion yuan, with a gross margin of 18.12%. In the context of the downward trend in float glass prices throughout the year, the company's gross margin performance in the second half of the year exceeded expectations. The main reason for this judgment is that the company's differentiated products (such as ultra-white/coated large sheets) accounted for a higher proportion, and the layout of overseas bases such as Indonesia accelerated. It is estimated that the average net profit of the company's float glass in the second half of 2025 is between 5-10 yuan, while the industry average is already in the loss zone. By the end of 2025, the cold repair of the float glass industry accelerated, and the daily melting capacity of float glass decreased from 160,000 tons/day to 147,000 tons/day, a month-on-month decrease of 8.1%. Automotive glass revenue and gross margin increased synchronously, with aftermarket stability as the underlying support and OEM acceleration breakthrough. In 2025, the company's automotive glass revenue was 6.861 billion yuan, a year-on-year increase of 8.8%, with a gross margin of 54%. Calculated back, in the second half of 2025, the company's automotive glass revenue was 3.538 billion yuan, a year-on-year increase of 7.31%, with a gross margin of 53.82%, and the gross margin remained at a high and stable level. The company's judgment that the synchronous acceleration of revenue and gross margin growth of automotive glass is benefited from: 1) As automotive glass becomes more electrified, the glass usage per vehicle significantly increases, synchronously raising the ASP of the aftermarket and OEM markets; 2) We have begun to accelerate OEM breakthroughs in recent years, driving revenue growth rate; 3) The decline in prices of raw materials such as float glass. The contribution of photovoltaic glass revenue weakened, but the risks of polysilicon were cleared. In 2025, XINYI GLASS contributed 1.41 billion yuan in net profit to its joint ventures. The decrease in profit contribution mainly resulted from the decline in performance of XINYI SOLAR, with the core being the impairment of polysilicon at the end of the year. The company's own impairment of polysilicon assets amounted to about 600 million yuan, further clearing the risk of impairment of polysilicon assets. Depreciation fully covers capital expenditures, entering a period of cash flow harvesting. The company's capital expenditures in 2025 were 1.431 billion yuan (51.24 billion yuan in 2024), while the depreciation in 2025 was about 1.5 billion yuan, meaning that depreciation has fully covered capital expenditures, entering a period of cash flow harvesting. The company had cash on hand of 2.9 billion yuan in 2025 (1.7 billion yuan in 2024), with a net debt-to-equity ratio of only 5.1% (16.3% in 2024), ready for continuous dividend potential in the future. Risk warning: Completion of housing projects falls short of expectations, and the increase in raw material prices exceeds expectations.