Demand for the glass industry rose steadily in the peak season, and profitability increased gradually

From mid-September to early-October, the market was in peak season. The downstream shipments were smooth and demand continued to improve. Even during the holidays, there was no decline in demand. The average glass price (4mm) is flat compared to the ring

71.9 yuan / weight box, the ring increased 2.0 yuan / weight box. At the same time, due to the stable price of heavy oil and soda ash, the gross margin is expected to be 13.5% in the first ten months of October, which is an increase of 2.6%. The current industry inventory was 25.39 million heavy containers, which was a decrease of 0.9% (reduction of 240,000 heavy containers). We believe that the downward trend has not changed, and the overall kiln shutdown rate was 24.9%, which was a drop of 0.6% from the previous quarter.

We believe that the downstream demand of the industry has now entered a period of strong growth, and the willingness of various manufacturers to resume production will continue to increase. It is expected that the overall balance of supply and demand will remain stable in the future, but the expected rate may be relatively limited due to the impact of new production capacity.

Main Indicators Tracking: Kiln shutdown rate (24.9%, 0.6% QoQ, gross margin (13.5%, increase 2.6%), inventory (25.39M heavy cases, 240,000 reductions from the previous quarter, 0.6% QoQ), fixed investment growth, Real estate sales area growth.

The main recommended companies: CSG A ("Buy" rating) and Qibin Group ("Accumulation" rating).

Demand is still in season and prices are rising

In late September and during the National Day holiday, glass prices in Shanghai, Xi’an, and Chengdu have a certain price increase. The rest of the region has remained stable, ranging from 0.5-3 yuan/heavy box. Pre-holiday sales were relatively good across the country, especially in the northern region where sales were in high season and the prices were relatively frequent. The overall market demand during the National Day holiday was fair. The Northeast Consortium meeting led to a slight increase in prices after the Northern Festival. Meanwhile, the Northwest and East China Regional demand is relatively active. The recent market in South China is relatively active and is expected to have some room for growth in the future. We believe that the industry is currently in an all-year high season. Local market demand is good and companies are shipping smoothly. It is expected that there will still be room for improvement in prices in subsequent regions. However, with the advent of November in Northeast China, there will be limited room for price increase. At the same time, as part of the production line is ignited and resumed, it is expected that the price increase will be affected. In the past two decades, the overall price has slightly improved (2.0 yuan/heavy box). The average price of glass in major cities in the current period (4mm) was 71.9 yuan/weight box. In terms of magnitude, Xi'an prices rose 3.0 yuan/heavy box, a rate of 4.62%, or the highest gains.

The rise in glass prices led to a price increase from late September to early October. Soda ash and heavy oil prices were 1,301 and 4,550 yuan per ton respectively, which was basically the same as in the previous quarter. The spread widened by 2.1 yuan/heavy box to 9.7 yuan/heavy box. We expect that demand will remain in the peak season in the short term, and the important factor affecting the spread and the profitability of the industry will be price-side price changes.

Inventory, Kiln Kiln rate slightly downward

As of the beginning of October, the industry's inventory was basically flat, which was 25.39 million weighted cases (a decrease of 240,000 weight boxes). Due to the recent improvement in supply and demand, inventory has declined slightly and it is expected that as the demand remains strong, the downward trend may continue. It is expected that the industry gross margin in early October will be 13.5%, which is a 2.6% increase from the previous quarter.

Glass plate and focus on company valuation

From late September to early National Day (as of October 12), the Shenwan Glass Manufacturing Index outperformed the CSI 300 Index by 2.84 percentage points, and the absolute PE of the glass plate was 26.8 times. Focusing on the company, CSG A and Qibin Group’s 2012 PE were 19x and 23x, respectively, maintaining “buy” and “overweight” ratings.