Guangfa Securities: Capacity cold repairs may be the main reason for the widening cost gap in photovoltaic glass this round

According to the Zhitong Finance APP, GF Securities released a research report stating that the gross profit margin gap between leading enterprises and mid-tier enterprises in 2024 is 10%-20%. Compared to the downstream photovoltaic module industry, the cost gap for photovoltaic glass enterprises remains high, with leading enterprises showing significant cost advantages. Analyzing from the cost perspective, the scale advantage of leading enterprises' furnaces has diminished in this cycle, and the increase in unit fixed costs due to cold repairs has widened the cost gap. The reduction in capacity utilization caused by capacity cold repairs may be the main factor contributing to the expansion of the cost gap in this cycle. 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 enterprises are expected to be further demonstrated.

The main viewpoints of GF Securities are as follows:

The cost curve of the photovoltaic glass industry is steep, and leading enterprises have obvious cost advantages.

The gross profit margin gap between leading enterprises and mid-tier enterprises in 2024 is 10%-20%. Compared to the downstream photovoltaic module industry, the cost gap for photovoltaic glass enterprises remains high, with leading enterprises showing significant cost advantages.

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

Furnaces: Large furnaces optimize finished products by reducing fuel consumption and improving 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; the larger the original sheet produced by large furnaces, the smaller the edge cutting ratio, resulting in a higher yield.

Know-how: The key technical difference lies in the melting stage of original sheet production. Under the same environmental conditions, leading enterprises excel in yield and consumption control at the melting end.

Raw material costs: Leading enterprises benefit from cost advantages through self-supply of low-iron quartz sand and large-scale procurement of soda ash and natural gas. Transportation costs: Leading enterprises reduce transportation costs through port hub layouts and industrial clustering.

Management and R&D expenses: Leading enterprises reduce management costs through better operational efficiency and larger production capacity. Financial expenses: First-tier enterprises 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 expenses.

It is estimated that the average gap between leading enterprises and mid-tier enterprises in the previous cycle was approximately 3.8 yuan/square meter.

In this cycle, the scale advantage of leading enterprises' 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 of furnaces. Starting in the second half of 2024, most backward production capacity will be eliminated during this phase, thus gradually weakening the scale advantage of furnaces. The reduction in capacity utilization caused by capacity cold repairs will lead to an increase in fixed costs (expenses and depreciation), which may be the main factor contributing to the expansion of the cost gap in this cycle. It is estimated that the current average cost gap between leading enterprises and mid-tier enterprises is approximately 3.6 yuan/square meter.

If we exclude the additional cost expenses caused by cold repairs, the average cost advantage of leading enterprises is about 2.4 yuan/square meter. Subsequently, as enterprises 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 expand again, and leading enterprises are expected to continue reducing their financial expenses due to their advantages in financing channels Looking ahead, if the fourth-generation ultra-large kiln is implemented, it is expected to restart the scale advantages of kilns, and the resource layout capabilities of leading enterprises are expected to be further demonstrated and reflected.

Recommended Targets

We strongly recommend KIBING (601636.SH), as KIBING has a relatively fast cost optimization speed, quickly catching up with leading enterprises. The company's kiln scale and cost control capabilities are at the industry-leading level. Due to capacity ramp-up and upfront costs, some bases will have lower profit margins in 2024. After the capacity ramp-up is completed, the company's gross profit margin in the first half of 2025 is already close to that of leading enterprises. We also recommend paying attention to XINYI SOLAR (00968), FLAT (601865.SH,06865), and Nanbo A (000012.SZ).

Risk Warning

Photovoltaic demand may fall short of expectations, anti-involution progress may not meet expectations, and there may be significant changes in photovoltaic industry policies