M IdeaGreater China Materials | Asia PacificHeadwinds Continue for Both Solar and Float GlassPrice and margin pressure are expected for both solar and float glass in 2024 on elevated industry supply, weakened demand and loosened support from production costs. Morgan Stanley Asia Limited+Hannah Yang, CFAEquity Analyst Hannah.Yang1@morganstanley.com +852 2239-7079 Rachel L ZhangEquity Analyst Rachel.Zhang@morganstanley.com +852 2239-1520 Sara ChanEquity Analyst Sara.Chan@morganstanley.com +852 2848-5292 Yujie WangEquity Analyst Yujie.Wang@morganstanley.com +852 2239-1502 Chris JiangEquity Analyst Chris.Jiang@morganstanley.com +852 3963-1593 Morgan Stanley appreciates your support in the 2024 Institutional Investor All-Asia Research Team Survey. Voting will open early January 2024. Greater China MaterialsAsia PacificIndustry ViewAttractiveExhibit 1 : What's changedPrice TargetNewOldCcyNewOldChina MaterialsSolar GlassXinyi Solar0968.HKOWOWHKD5.8011.0039%Flat Glass (H)6865.HKOWOWHKD15.6025.4029%Flat Glass (A)601865.SSOWOWRMB29.9039.3020%Triumph New Energy (H)1108.HKEWOWHKD4.104.8012%Triumph New Energy (A)600876.SSEWOWRMB14.2014.808%GlassXinyi Glass0868.HKEWEWHKD9.1012.809%Zhuzhou Kibing Glass601636.SSUWUWRMB6.007.00-10%CSG Holding000012.SZUWUWRMB5.005.50-9%Rating % Upside/ Downside to PT Source: Morgan Stanley ResearchSolar glass supply to continue to increase despite capacity controls, weighing on prices amid softened demand: Despite stringent central government controls on solar glass capacity expansion, 19.6kt/d of new capacity was added to the market in 2023. Capacity expansion plans from solar glass players will remain aggressive in 2024. We think total operating capacity could reach ~123kt/d by end-2024, assuming lines at all producers see some delays in commencement due to weak industry profitability. Demand may slow materially given the high installation base in 2023 and high inventory at module producers. Assuming ~600GW module production and ~80% double-sided module penetration implies ~91kt/d solar glass capacity should be sufficient to meet downstream demand in 2024. Solar glass prices may hit bottom in 1Q and see a QoQ sequential recovery in 2024.Float glass also faces pressure from expanded mismatch in industry supply and demand: Float glass operating capacity increased in 2023 on solid profit. Overall operating capacity may stay at a high level of 173kt/d in 2024 vs. the average of 168kt/d in 2023, implying a YoY increase of 3% YoY in glass supply. Demand, on the other hand, is likely to drop on the material decline in new starts in 2021 despite support from the housing delivery and urban village renovation program.Loosened cost support may bring price downside for both solar and float glasses: Soda ash accounts for >20% of glass production costs, and its price rebounded a few times in 2023. Despite ramping at a slower pace, ~6.4mnt of new soda ash capacity started operation in 2023...
