[Top 100 Insight] Another outstanding performance in Q3, what's the future outlook for Fuyao Glass?

The global leader in automotive glass industry$FUYAO GLASS(03606.HK) $FYG;FUYAO GLASS(600660.SH) released a stellar Q3 report after market close on October 17th, continuing its previous high-growth momentum.

In Q3 this year, FUYAO GLASS achieved revenue of 9.974 billion yuan, up 13.41% YoY; net profit of 1.98 billion yuan, up 53.54% YoY; weighted average ROE of 6.10%, up 1.72 percentage points YoY.

On October 18th, FUYAO GLASS's A-shares and H-shares both rose, closing up 3.06% and 6.99% respectively.

Order Volume "Beyond Imagination"

FUYAO GLASS is one of the representatives of Chinese manufacturing. As a giant in the automotive glass industry, it has benefited from the growth in assembly segments driven by the rise of China's new energy vehicles.

Despite sluggish global auto sales this year, especially in European and American markets, FUYAO GLASS maintained steady growth in Q3, with quarterly revenue nearing 10 billion yuan, hitting a new historical high and further enhancing economies of scale.

FUYAO GLASS founder and chairman Cao Dewang, like $NVIDIA(NVDA.US) founder Jensen Huang, has seen his company flooded with orders. Cao mentioned in September that FUYAO GLASS's domestic and overseas factories are almost all operating at full capacity, with order volumes "beyond imagination."

Domestically, China's auto industry maintained stable growth thanks to policies like trade-in programs and local incentives. Data from the China Association of Automobile Manufacturers shows that from January to September, auto sales rose 2.4% YoY to 21.571 million units, with new energy vehicle sales surging 32.5% YoY to 8.32 million units.

The growing demand for lightweight and smart glass from new energy vehicles presents opportunities for FUYAO GLASS.

To capitalize on this "golden opportunity," FUYAO GLASS launched projects in Fuqing, Fujian, and Hefei, Anhui, since late last year, entering a new phase of capacity expansion to support order growth. These projects will eventually add annual production capacity of about 46.6 million square meters of automotive safety glass and two high-quality float glass production lines, equivalent to about 30% of the company's 2023 sales volume.

Additionally, FUYAO GLASS revealed in August that its U.S. factory expansion is on track and expected to complete by year-end, followed by production ramp-up.

Cao Dewang also disclosed plans to invest 10 billion yuan this year to add production bases in Hefei and Fuqing to alleviate current order pressure.

Future Growth Lies in Overseas Expansion and High-Value Products

Multiple investment banks praised FUYAO GLASS's Q3 performance, with many giving it a "buy" rating.

Zhongtai Securities noted that FUYAO GLASS's automotive glass products saw both volume and price increases, with its leading position further solidified, demonstrating strong growth and stability. The firm highlighted that capacity expansion, ASP growth, market share gains, and new businesses are driving FUYAO's transition from cyclical to growth.

FUYAO GLASS benefits from economies of scale, high automation, vertical integration, and labor cost advantages, resulting in industry-leading gross margins. Data from Tonghuashun shows FUYAO's gross margin has been rising since 2023, reaching 38.78% in Q3, up 2.47 percentage points YoY.

The continuous improvement in FUYAO GLASS's gross margin is not only due to economies of scale and cost efficiency but also the rising proportion of high-value products.

The development of automotive "new four modernizations" (electrification, connectivity, autonomy, and sharing) has led to more technologies being integrated into automotive glass, increasing demand for products like smart panoramic sunroof glass, dimmable glass, HUD glass, and ultra-insulating glass. These high-value products are becoming a larger part of FUYAO's sales mix, creating structural opportunities.

In its interim report, FUYAO GLASS stated that high-value products like smart panoramic sunroof glass and dimmable glass now account for 4.82 percentage points more of sales YoY. The company also revealed in its earnings call that automotive glass ASP rose 8.3% YoY, with prices per square meter in a rapid upward trend.

Going forward, as the new energy vehicle market grows, FUYAO GLASS's high-value product revenue is expected to rise further, boosting gross margins.

Overseas expansion is another key growth driver for FUYAO GLASS. Futu data shows overseas revenue accounted for 44.61% of total revenue in 2023. The company noted in its interim report that overseas sales now make up about half of total sales and are growing yearly.

Guosen Securities stated in a report that FUYAO GLASS's ongoing capacity expansions in China and the U.S. will likely start a new growth cycle, further strengthening its leading position and global market share.

Notably, FUYAO GLASS's strength has been widely recognized by the market, with frequent awards in the "Top 100 Hong Kong Stocks" rankings. According to the ranking's official website, FUYAO GLASS has won awards like 5th place in "Most Investment-Worthy" (2018), 7th in "Most Growth Potential for New Stocks" (2017), and 91st in "Top 100 by Comprehensive Strength" (2016), showcasing its competitive edge.

The "Top 100 Hong Kong Stocks" ranking, launched in 2012 by Tencent and Financial Times, uses big data and scientific metrics to evaluate Hong Kong-listed companies. It aims to identify outstanding firms and set investment benchmarks, promoting healthy development in Hong Kong's capital markets.

The ranking event has grown in scale and influence, becoming a key annual gathering for Hong Kong's financial sector.

The 11th "Top 100 Hong Kong Stocks" awards ceremony will be held on November 11th. With FUYAO GLASS in a growth cycle, it has significant potential to benefit from global auto market opportunities. Will FUYAO GLASS make the list again? Stay tuned.

Author: Yao Yuan