Cao Dewang steps back, can FUYAO GLASS withstand the test?

While delivering impressive results, Fuyao Glass founder Cao Dewang officially stepped down, handing over the "glass aircraft carrier" to his eldest son Cao Hui.

Key Points:

• In the first three quarters, the company's revenue and net profit recorded double-digit growth.
• The net operating cash flow for the first three quarters reached 9.885 billion yuan, a year-on-year increase of 57%.

Li Shida

This leading manufacturer known globally for automotive glass delivered an impressive quarterly report in October and witnessed one of the most significant personnel changes in its nearly 40-year history. Fuyao Glass Industry Group Co., Ltd. (3606.HK; 600660.SH) legendary founder Cao Dewang officially resigned from the chairman position, passing the baton to his eldest son Cao Hui. However, despite the performance support, this long-anticipated transition has raised market concerns.

Revenue and Net Profit Reach New Highs for the Same Period

From a financial performance perspective, Fuyao Glass remains a well-functioning mature enterprise. The company announced that it achieved revenue of 11.85 billion yuan (1.666 billion USD) in the third quarter, a year-on-year increase of 18.9%. The total revenue for the first three quarters reached 33.3 billion yuan, an increase of 17.6% compared to the same period last year; the net profit for the first three quarters was 7.06 billion yuan, with a growth rate of 28.9%. This is quite remarkable against the backdrop of a sluggish recovery in the overall manufacturing sector.

Additionally, Fuyao Glass's cash flow situation remains abundant, providing significant buffer space for the new management team after taking over. According to the third-quarter report, the net operating cash flow for the first three quarters reached 9.885 billion yuan, a year-on-year increase of 57%; as of the end of September, the net increase in cash and cash equivalents reached 21.86 billion yuan, far exceeding the total short-term liabilities. The company recorded financial expenses of negative 923 million yuan, indicating that interest income has surpassed expenses, significantly improving capital utilization efficiency.

This means that before retiring, Cao Dewang left his successor Cao Hui with a cash-rich, financially stable "glass aircraft carrier," allowing the new management team to advance technology research and overseas expansion while maintaining financial stability.

However, the overall performance has not fully satisfied investors, as the quarterly performance showed slight slowing, coupled with reduced foreign exchange gains, which dampened market sentiment. Following the announcement of the transition, Fuyao Glass's A-shares opened lower and fell further the next day, with a single-day decline of over 5%. The Hong Kong stock also dropped to 67.5 Hong Kong dollars, and the stock price fluctuated between 68 and 70 Hong Kong dollars over the following week. Currently, the stock price is still down about 3.7% compared to before the transition, indicating that investors remain cautious about the company's succession.

Fuyao Glass's brand has long been tied to Cao Dewang himself. This nearly 80-year-old entrepreneur has transformed a local glass factory into China's largest automotive glass supplier and the second-largest giant in the global industry since starting his business in the 1980s. According to company data, by 2024, Fuyao will have factories in 12 countries worldwide, with a domestic market share exceeding 70%, a 43% share in the U.S. market, and nearly 20% in the European market. Under his leadership, Fuyao has long since ventured out of China and integrated into the global automotive supply chain Cao Dewang stated during a media interview: "I am 80 years old and should retire." He mentioned that he is in good health and stepping down is for the long-term development of the company: "Stepping down is more beneficial for Fuyao, allowing a new generation to take over."

Steering the "Glass Aircraft Carrier"

After retirement, he will still serve as the honorary chairman for life and a director, maintaining spiritual leadership over the company. The new chairman, Cao Hui, is not a "parachute second generation," but has personally participated in several important stages of the company—joining in 1989, serving as North America President and Group President, and leading the team in 2001 to win the famous anti-dumping lawsuit against the U.S., marking the first time a Chinese company triumphed over the U.S. government under the WTO framework. He later left to start his own business and brought his company into the Fuyao system, filling the gap in the aftermarket glass market.

Rather than passing the baton, it is more like a return. Huatai Securities pointed out in a research report that Fuyao's current system and decision-making framework have already taken shape, and even with changes in management, daily operations will not be affected. Dongxing Securities maintains a "Buy" rating, believing that the company's leading position in automotive glass is solid and its R&D-driven direction is clear. Morgan Stanley also noted that third-quarter revenue reached a historic high, with a slight year-on-year increase in gross margin, although there was a slight quarter-on-quarter decline, but overall business progress met expectations.

The outside world anticipates that Cao Hui will continue the direction of driving product upgrades through R&D. From 2020 to 2024, Fuyao's R&D expenses increased from 816 million yuan to 1.678 billion yuan, with a compound annual growth rate of 19.8%, higher than the revenue growth rate during the same period. The company continues to launch high value-added products, such as heads-up display (HUD) glass, 5G antenna glass, and solar glass, resulting in an average selling price (ASP) increase of nearly 7% year-on-year, with high-end products accounting for more than half. R&D investment has shifted the company from traditional manufacturing to smart glass and automotive electronics applications.

The company's overseas market layout is also accelerating. By 2024, overseas market sales are expected to reach approximately 17.555 billion yuan, accounting for about 45.35%, indicating that the company's globalization strategy is being implemented