Fuyao Glass Industry Group (03606) 2023 performance meeting: Increase in ASP boosts performance growth, with over half of revenue coming from high value-added products.

On March 16, Fuyao Glass Industry Group (03606) held its 2023 annual performance release conference. At the conference, Fuyao Glass Industry Group stated that a key factor in the growth of the company's performance in 2023 was an increase in the average selling price (ASP). Overall, the company's main business revenue for automotive glass in the full year was 29.887 billion yuan, with a year-on-year increase in sales volume of 10.24% and a year-on-year increase in unit price of 5.94%. In 2023, Fuyao Glass Industry Group achieved a gross profit margin of 35.39% for the full year, an increase of 1.36 percentage points compared to the previous year. This improvement was attributed to quality enhancement and efficiency, as well as the effect of operating leverage and a decrease in shipping costs. The company also continued to optimize its product structure, with the revenue share of high value-added products increasing to 53.94%, a year-on-year increase of 9.5 percentage points. This improvement was reflected in the increase of ASP by 5.94 percentage points, thanks to the increase in the proportion of high value-added products. Considering the trend towards electrification and intelligence in the automotive industry, the company pointed out at the conference that the ASP of Fuyao Glass Industry Group is expected to continue to grow in the next 3 to 5 years, with a high probability of increasing by 6 to 7 percentage points annually. This is because the company's product structure will continue to shift towards high value-added products. Furthermore, Fuyao Glass Industry Group will invest 9 billion yuan in fixed assets, mainly to secure new orders and establish a solid foundation. The company will focus on improving research and development investment, service capabilities, and industrial chain integration, aiming to gain a larger market share and improve equipment levels. Specifically, the project in Fuqing is expected to increase production by 20.5 million square meters, while the project in Anhui is expected to increase production by 26.1 million square meters, totaling approximately 46.6 million square meters. This production increase is based on the mid-to-long-term expectation of the global average growth rate of the automotive industry of 2.5%-3%. The company is confident in its development prospects and believes that these investments will enhance its global competitiveness. Q&A: Q: How was the growth of ASP in 2023? What are the specific situations domestically and internationally, and what are the expectations for the growth of ASP in the future? A: In 2023, we achieved growth in performance, with an increase in the average selling price (ASP) being a significant factor. Overall, the main business revenue for automotive glass for the full year was 29.887 billion yuan, with a year-on-year increase in sales volume of 10.24% and a year-on-year increase in unit price of 5.94%. While we cannot provide specific comparative data for domestic and international markets, we can see the contribution of ASP increase from the main product categories. The annual report shows that our average price per square meter was 213.24 yuan last year. As for the future outlook for ASP, we will continue to focus on optimizing and upgrading our product structure and market conditions to achieve reasonable growth. Q: What were the specific financial performance results for Fuyao Glass Industry Group in 2023? A: Fuyao Glass Industry Group performed well in 2023. The annual operating income reached 33.161 billion yuan, an increase of 18.02% year-on-year. The net profit attributable to shareholders of the listed company was 5.629 billion yuan, an increase of 18.37% year-on-year. The weighted average return on net assets reached 18.97%, an increase of 1.32 percentage points year-on-year, while the basic earnings per share were 2.16 yuan, an increase of 18.68% year-on-year. In terms of profitability, the gross profit margin was 35.39%, an increase of 1.36 percentage points compared to the same period last year. The company's operating cash flow was 7.625 billion yuan, an increase of 29.38% year-on-year. Q: What efforts did the company make in cost control and product structure optimization in 2023? A: The company's gross profit margin improved in 2023. Specifically, the full-year gross profit margin was 35.39%, an increase of 1.36 percentage points compared to the previous year. Quality enhancement and efficiency were important reasons for this improvement, along with the effect of operating leverage and a year-on-year decrease in shipping costs. We also continued to optimize our product structure, with the revenue share of high value-added products increasing to 53.94%, a year-on-year increase of 9.5 percentage points. This also led to the enhancement of ASP by 5.94 percentage points, thanks to the increase in the proportion of high value-added products. Q: What measures were taken in cost control in 2023? A: The company performed very effectively in cost control. The proportion of sales expenses, management expenses, and research and development expenses to revenue decreased to 16.37% for the full year, a decrease of 0.5 percentage points compared to the previous year. This reflects the effectiveness of economies of scale and operating leverage. Q: What are the company's plans for cash returns to investors? A: We place great importance on cash returns to investors. The dividend proposal for 2023 is 1.3 yuan (tax included) per share in cash, an increase of 0.05 yuan per share. This means that the dividend accounted for 60.3% of the net profit attributable to the parent company. Over the past three years from 2021 to 2023, the cash dividends have accounted for as much as 68.47% of the net profit attributable to the parent company. Q: How was the average selling price (ASP) for Fuyao Glass Industry Group last year? A: In 2022, the ASP for Fuyao Glass Industry Group increased from 201.28 yuan to 213.2 yuan, an increase of 5.94 percentage points. This increase was primarily due to the optimization of the product structure, with an increase in the share of high value-added products. For example, the panoramic sunroof accounted for an increased revenue share from 7.01% to 8.73% from the previous year, while the head-up display (HUD) reached 6.61%, an increase of 1.81 percentage points; and formaldehyde-tempered edge windows reached 5.41%.The growth rate increased by 0.99 percentage points; products related to assisted driving with cameras reached 7.76%, an increase of 0.7 percentage points compared to the previous year; coated heat insulation products now account for 2.62%, an increase of 1.3 percentage points year-on-year; heating products with wire clips account for approximately 2.05%, an increase of 1.19 percentage points.Q: How do you view the future ASP growth prospects of Fuyao Glass Industry Group? A: Given the trends towards electrification and automation in the automotive industry, I believe that Fuyao Glass Industry Group's ASP will continue to grow in the next 3 to 5 years, likely increasing by about 6 to 7 percentage points annually. This is because the company's product structure will continue to shift towards higher value-added products. Q: What is Fuyao Glass Industry Group's dividend policy? A: Fuyao Glass Industry Group values investor returns highly. The dividend payout ratio over the past three years has been 68.47%. Including dividends since the company went public in 1993, the cumulative ratio is around 65%. The dividend policy is determined based on global economic and financial conditions, as well as company capital expenditure and operational factors. For example, in 2023, capital expenditure is expected to decrease by approximately 8.88 billion compared to this year, but this will not impact the company's development plans. Maximizing shareholder value not only represents company growth but also maximizes shareholder value. The planned capital expenditure for 2024 is approximately 8.02 billion, and considering all factors, the dividend proposal for 2024 is set at 1.3 RMB per share, an increase of 0.5 percentage points from last year. We estimate that this will maintain the company's asset-liability ratio stable and continue to focus on investor returns. Q: What are the specific data for Fuyao Glass Industry Group's gross profit margin in the fourth quarter? Are there specific data for operating income increases attributable to raw materials like caustic soda and transportation costs? A: Fuyao Glass Industry Group's gross profit margin in the fourth quarter increased by 3.69 percentage points year-on-year and by 0.2 percentage points quarter-on-quarter. In the fourth quarter, we considered the rising natural gas prices due to the Russia-Ukraine conflict, which impacted the gross profit margin by 1.56 percentage points. Excluding this factor, the year-on-year growth should be 2.1 percentage points. Additionally, improvements in product quality efficiency and average selling price contributed to about 1 percentage point, while our operational leverage added 0.75 percentage points. Q: What are the future investment plans for Fuyao Glass Industry Group in the next few years? A: As for future investments, the expected total investment amount for 2024 is 81.2 billion RMB, with the Anhui and Fujian projects totaling approximately 90 billion RMB, with fixed asset investment of around 62 billion RMB. Since the construction of these two projects will span two years, we expect them to be completed from early 2024 to the end of 2025. Out of the 81.2 billion investment, about 20 billion is related to cash outflows for these two projects. Additionally, around 18 billion is from previous years' investments that have been postponed to now. This means that the actual investment for engineering construction in 2024 will be about 43.2 billion RMB. Q: What are the expectations for Fuyao Glass Industry Group's gross profit margin trend in 2024? A: There are many factors that influence the gross profit margin, including raw material costs, depreciation, and the product structure of high value-added products. Although energy price fluctuations have a significant impact on gross profit margin, we expect energy prices in 2024 to be similar to 2023. For caustic soda prices, despite previous expectations of a decrease, due to futures volatility, prices in 2023 remained similar to 2022. For 2024, a decrease in caustic soda prices is expected, with an estimated decrease of over 400 RMB per ton (including tax, about 450 RMB, excluding tax approximately 400 RMB). As for transportation costs, as they started to decrease in the second half of 2022, we believe levels in 2024 should be similar to 2023. Additionally, with the continuous optimization of our high value-added product structure, we expect it to positively impact the gross profit margin. Q: What are the main considerations behind Fuyao Glass Industry Group's 90 billion RMB fixed asset investment? A: This investment is mainly aimed at securing new orders and laying a solid foundation. Fuyao Glass Industry Group is focused on enhancing R&D investment, service capabilities, and industry chain integration to strive for a larger market share and improved equipment levels. Specifically, the project in Fuqing is expected to increase production by 20.5 million square meters, while the project in Anhui is expected to increase production by 26.1 million square meters, totaling approximately 46.6 million square meters. This increase in production is based on a medium to long-term average global automotive industry growth rate of 2.5% to 3%, and we are confident in the development prospects and believe these investments can enhance the company's global competitiveness. Q: Based on the data from 2023, what are Fuyao Glass Industry Group's market shares in domestic and overseas markets? A: Fuyao Glass Industry Group no longer specifically discusses market share data as long as it is above the industry average, it demonstrates competitiveness. As of 2022, the global market share was approximately 34%, and the domestic market share was close to 70%. Fuyao Glass Industry Group's market share is about 10 percentage points higher than the second-ranked competitor. Based on the growth of the global automotive industry, Fuyao's production growth rate is about 10.24%, higher than the global automotive industry's growth rate of 8.2%, resulting in an increase in market share. Q: The growth rate of Fuyao Glass Industry Group's ASP last year seems lower than expected, can this be explained by the impact of price decreases? What are the expectations for 2024? A: The impact on ASP last year was approximately 0.8 percentage points, primarily due to adjustments caused by non-contract factors. Since automotive manufacturers negotiate prices annually, price adjustments are common in the industry. Generally speaking, profitability comes from comprehensive competitiveness. Compared to peers, Fuyao Glass Industry Group's profitability is significant. Looking at the whole industry background, there is no room for significant price reductions. According to long-term strategic cooperation, Fuyao Glass Industry Group and car manufacturers will have some reasonable price adjustments. However, significant price reductions are not possible, as the entire industry does not have the ability to lower prices in this way.Q: How does Fuyao Glass Industry Group's domestic and international business structure affect the company? A: The domestic and international business structure does have a certain impact on Fuyao Glass Industry Group. It had an impact of about 0.5 percentage points last year. Changes in production volumes of different car models also have an influence on the product structure. Overall, we expect that future ISP will increase by about 6 to 7 percentage points. In the next three to five years, we are optimistic about the development of the business foundation. Q: What were the specific reasons for the impairment in the fourth quarter of last year? What are the prospects for the profitability of projects in 2024? A: The main reasons for the impairment were operational issues and the differences between customer order plans and actual production volumes. Normal operating losses decreased by about 6 million euros last year, but overall there was still a loss. We made impairment provisions for assets totaling over 2,060 million euros, and after impairment, the loss last year was about 50,790 million euros. We plan to further reduce the losses by improving internal performance and efficiency. In addition, we are in communication with car manufacturers to address the issues caused by plan discrepancies and seek fair compensation. Q: What is the outlook for the offline business? How do the synergies between the aluminum component business and the automotive glass business work? A: In my opinion, the outlook for our offline business is very positive from multiple perspectives. Firstly, in terms of individual company performance, the profitability of the offline business has improved. Secondly, from the perspective of domestic and international integration, sales revenue in 2023 increased by about 100% year-on-year. Particularly for automotive joint venture factories, our global presence and integration of domestic and international businesses make them more confident in our business. Additionally, the synergies between the aluminum component business and the automotive glass business are evident. Our own aluminum component business is closely integrated with glass production. In the past, the quality of aluminum component integration by other companies was poor and delivery times were not guaranteed, leading to complaints from car manufacturers. We have enhanced the integrity of the entire supply chain, increased production of molds and aluminum alloy front-ends, making our business more recognized by car manufacturers. Therefore, we expect that the aluminum component business will not only continue to grow but also make a greater contribution to our performance.