Gross Profit Margin of Float and PV Glass Under Pressure; Kibing Group Expects Non-Recurring Net Profit in 2024 to Drop by Over 80%

The performance in H2 showed a significant "slowdown," with Kibing Group (601636.SZ) expecting its 2024 net profit after deducting non-recurring gains and losses to drop by over 80%.

Kibing Group announced this evening that in 2024, the company expects to achieve a net profit attributable to shareholders of the parent company of 330 million to 410 million yuan, down 81.15% to 76.58% YoY; net profit after deducting non-recurring gains and losses is expected to decrease by 85.56%-81.35% YoY.

The company stated that in 2024, affected by the downturn in the real estate cycle, the float glass industry faced insufficient demand, increased supply, reduced demand, and rising inventory, leading to a YoY decline in product prices and a YoY drop in the gross profit margin of the float glass business. Since H2 2024, the growth of PV power generation installations has slowed, exacerbating the temporary surplus in the PV glass industry, causing a supply-demand imbalance and a significant YoY decline in product prices, which resulted in a drop in the gross profit margin of the PV glass business.

Additionally, due to the significant price decline, the company made provisions for asset impairment on certain inventory products with reduced net realizable value.

The financial report shows that in H1 2024, the company's revenue and net profit increased by 14.92% and 25.35% YoY, respectively, while net profit after deducting non-recurring gains and losses rose by 35.23% YoY. During this period, despite a YoY "decrease" in sales volume of various high-quality float glass products, the production and sales volume of PV glass saw a significant YoY increase. With double-digit growth in H1, why did net profit fluctuate so dramatically in H2?

From the company's financial reports across different periods, apart from the sluggish float glass market, the profitability of its heavily invested PV glass segment may have fallen short of expectations.

In H1 2024, PV glass accounted for 36.66% of the company's main business revenue. According to the announcement, as the core development platform for the company's PV glass business, Kibing Solar, a subsidiary in which Kibing Group holds a 71.2156% stake, achieved a net profit of approximately 221.7 million yuan in H1 2024. However, for the first three quarters of 2024, its net profit was only 38.89 million yuan.

The above data indicates that Kibing Solar turned from profit to loss in Q3 2024. In fact, Kibing Solar's revenue has consistently grown in recent years, with sales revenue of approximately 1.8 billion yuan, 3.46 billion yuan, and 4.32 billion yuan in 2022, 2023, and January-September 2024, respectively.

At the Q3 2024 earnings briefing, company executives stated that since 2022, the company has increased its investment in the PV glass industry, expanding from one production line in 2021 to 11 production lines (of which nine were operational at the time, with a daily melting capacity of 10,600 mt; two additional lines with a daily capacity of 1,200 mt each were under construction). Since Q2 2024, insufficient operations among PV module companies have led to a decline in market demand for PV glass, with prices continuing to fall. The company's Q3 performance last year was significantly dragged down by its float glass and PV glass businesses.

It is worth noting that part of Kibing Solar's equity was transferred by the publicly listed firm within a year and is now planned to be repurchased through a share issuance.

In March and June 2022, Kibing Group injected 1.718 billion yuan and 900 million yuan, respectively, into Kibing Solar. After the capital injections, the company maintained a 100% stake in Kibing Solar.

In November 2023, Kibing Group announced plans to transfer 15.04% of its stake in Kibing Solar to several employee co-investment platforms for 547 million yuan. Simultaneously, Kibing Group transferred 13.75% of its stake in Kibing Solar to its actual controller Yu Qibing's entity (Ninghai Kibing) for 500 million yuan.

After completing these two transactions, Kibing Group's stake in Kibing Solar was reduced to 71.22%. Nearly a year later, on the evening of November 5, 2024, Kibing Group announced plans to repurchase approximately 28.79% of Kibing Solar's equity, previously transferred to the employee co-investment platforms and Ninghai Kibing, through a share issuance. Upon completion of the transaction, Kibing Group will hold 100% of Kibing Solar's equity.

On January 3 this year, the company announced that the audit, evaluation, due diligence, and other work related to this transaction are underway, and the company and relevant parties are advancing the specific matters of this transaction in an orderly manner.

As the company's PV glass business faces a "cold wave," whether this equity, after its "roundabout" journey within a year, has appreciated or depreciated remains to be seen in subsequent announcements.