Glass industry demand for improvement in prices stabilized

Main Views The market demand was basically flat in the first half of May. On the supply side, the Benxi production line ignited, and another 650t/d production line was shut down. The average price of glass (4mm) fell by 0.3 yuan/box to 65.3 yuan/heavy box, with a range of 0.5%. The overall profitability of the industry is still in the bottom area. Since the price of soda ash has fallen by nearly 7%, the gross margin is expected to be 3.4% in early May. The industry inventory for the current ten-year period was 28.84 million heavy cases, which was a drop of 3.3% (940,000 weight cases) month-on-month, and there were signs of accelerated declines. The kiln shutdown rate was 26.0%, which was a record high.

We believe: We believe that the inventory of companies has been declining continuously from 30.16 million heavy containers for the last 2 consecutive months. There has been some signs of acceleration in the near future that shows that the demand has indeed improved, and circulation has begun to accelerate the purchase of goods. At the same time, as regional meetings are held frequently, market confidence and Expectations for the market outlook will improve somewhat, and the quarter-to-quarter ratio can be determined, but the magnitude and speed still need to focus on subsequent changes in demand. The increase in profit for the current ten-year period is mainly due to cost decline rather than price increase. The industry's earnings are still at the bottom. In the short term, most of the companies are still suffering serious losses. It is expected that some small and medium-sized enterprises' production lines will be unsustainable losses and shutdowns, but there is not much room for improvement. As market demand continues to improve slightly, it will stabilize the price and increase industry profitability.

Key indicators: Kiln stoppage rate (26.0%, 0.3% qoq, historical high), gross margin (3.4%, 1.3% increase compared to the previous month), and inventory (27.86 million cases, a decrease of 940,000 cases over the month, a range of 3.3%). Fixed investment growth, real estate sales area growth.

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

The price chain was basically the same, the market was stable, and the willingness of companies to raise prices was strong. In early May, prices and sales in various regions remained stable, and the market was still in a relatively slow recovery process. No obvious improvement was seen. Regional seminars and small-scale conferences have continued to increase market confidence in East China and Central China. Companies are more willing to raise prices. At the same time, the inventory of companies in various regions continued to decline slowly. We believe that the industry is still digesting the history of the early-stage enterprises and two new high-stock production lines are sparking. One of the flooding also proves that the industry still has different views on the future market. We believe that there are still follow-up markets. More uncertain factors, such as new capacity and speed of demand improvement, suggest that we continue to focus on changes in demand. In the current ten-day period, the prices remained flat, except for the increase of 1 yuan/weight in the Chengdu area. Beijing, Qinhuangdao, Shenyang, and other places all declined slightly, with a range of 0.5 yuan/heavy box.

The average price of glass in major cities in the current period (4mm) was 65.3 yuan/heavy box, down 0.3 yuan/heavy from the previous quarter, basically the same as last month. In terms of magnitude, Beijing's price fell by 0.5 yuan per heavy box, a rate of 0.8%, and Chengdu's rise was 1.5%.

Soda ash prices fell sharply. The price gap widened in the first half of May. Soda ash prices fell 6.9% to 1,390 yuan/ton, heavy oil prices to 4,550 yuan/ton, and the total cost fell. The average price was flat, making the spread widen, the industry Profit recovery. We expect that in the short term, demand will still be in a weak recovery, and the spread will be flat or slowly expanding, but we still need to pay attention to changes in downstream demand.

Inventories accelerated, and market sentiment improved slightly As of early May, industry inventory fell by 3.3% month-on-month to 27.84 million heavy cases (down 945,000 cases). The kiln shutdown rate was 26.0%, and reached a record high. It is expected that the industry gross margin in early May will be 3.4%, which is a 1.3% increase from the previous quarter. The profit is still in the bottom area, but the confidence of the manufacturers and their improvement.

Glass plate and focus on company valuation In early May (as of May 10), Shenwan Glass Manufacturing Index underperformed the Shanghai-Shenzhen 300 Index by 1.4%, and the glass segment's 11-year absolute PE was 30.4 times. Focusing on the company, CSG A and Qibin Group's 2012 PE were 16x and 27x, respectively, and they maintained the “buy” and “overweight” ratings.