Guangfa Securities: Dynamic Interpretation of Cost Advantages, Focus on New Stars in the Photovoltaic Glass Industry

According to the Zhitong Finance APP, GF Securities has released a research report stating that the cost curve in the photovoltaic glass industry is steep, with leading companies having significant cost advantages. In 2024, the gross profit margin gap between top-tier companies and mid-tier companies is expected to be 10%-20%. Compared to the downstream photovoltaic module industry, the cost gap for photovoltaic glass companies remains high, with leading companies standing out in terms of cost advantages. The report strongly recommends KIBING (601636.SH) and also suggests paying attention to XINYI SOLAR (00968), FLAT (601865.SH, 06865), and CSG (000012.SZ).

Key points from GF Securities are as follows:

Cost research framework for photovoltaic glass: The scale of the furnace was the main source of cost differences in the previous cycle

(1) Furnace: Large furnaces optimize finished products by reducing fuel consumption and increasing yield. Large furnaces have higher melting rates and greater production efficiency per unit area. The yield is mainly affected by edge cutting and defective products; larger raw sheets produced by large furnaces have a smaller edge cutting ratio and higher yield. (2) Know-how: The key technical difference lies in the melting stage of raw sheet production. Under the same environmental conditions, leading companies excel in yield and consumption control at the melting end. (3) Raw material costs: Leading companies benefit from self-supplying low-iron quartz sand and large-scale procurement of soda ash and natural gas. (4) Transportation costs: Leading companies reduce transportation costs through port hub layouts and industrial clustering. (5) Management and R&D expenses: Leading companies lower management costs through better operational efficiency and larger production capacity. (6) Financial costs: First-tier companies can raise funds through equity financing, bond issuance, and other means due to their stronger market position and credit ratings, allowing them to adjust their asset-liability structure more flexibly and minimize financial costs. The firm estimates that the average cost gap between leading and mid-tier companies in the last cycle was approximately 3.8 yuan/square meter.

In this cycle, the scale advantage of leading companies' furnaces has diminished, and the increase in unit fixed costs due to cold repairs has widened the cost gap

The technology diffusion speed of photovoltaic glass furnaces is relatively fast. After 2022, the ignition wave of furnaces with a daily melting capacity of around 1,000 tons has temporarily narrowed the scale gap. Starting in the second half of 2024, most of the outdated capacity will be eliminated during this phase, thus gradually weakening the scale advantage of furnaces. The reduction in capacity utilization caused by cold repairs will lead to an increase in fixed costs (expenses and depreciation), which may be the main factor for the widening cost gap in this cycle. The firm estimates that the current cost gap between leading and mid-tier companies is approximately 3.6 yuan/square meter. If we exclude the additional costs brought by cold repairs, the average cost advantage of leading companies is about 2.4 yuan/square meter. Subsequently, as companies gradually optimize personnel and equipment, the amortization of fixed costs will return to normal levels. If we do not consider the additional costs of cold repairs, the gap in expenses will widen again, and leading companies are expected to continue reducing their financial costs due to their advantages in financing channels. Looking ahead, if the fourth-generation ultra-large furnaces are implemented, it is expected to restart the scale advantage of furnaces, and the resource layout capabilities of leading companies are likely to be further demonstrated.

Risk Warning Photovoltaic demand is below expectations, progress on anti-involution is not as expected, and there have been significant changes in photovoltaic industry policies