Goldman Sachs: XINYI SOLAR (00968) Half-Year Performance Meets Expectations, Raises Target Price to HKD 3

Goldman Sachs released a report stating that XINYI SOLAR (00968) announced a 95% year-on-year decline in net profit for the first half of the year, amounting to 39 million yuan, which aligns with the prior profit warning (net profit below 50 million yuan). This performance was better than its peer FLAT GLASS (06865), which forecasted a net loss of 300 million to 400 million yuan for the same period, primarily benefiting from the buffering effects of CECEP Solar Energy's power station business and a higher share of overseas production capacity (about 20% for the first half of the year). The significant year-on-year drop in net profit was mainly due to a 20% decrease in average selling prices and a 6% decline in shipment volume. Goldman Sachs has raised its 2026 EBITDA forecast by 57% and average forecasts from 2027 to 2030 by 3%, reflecting higher shipment volumes and lower costs. The target price has been increased from HKD 2.8 to HKD 3, still based on a forecasted price-to-book ratio of 0.8 times for 2026, maintaining a "buy" rating. During the earnings release conference, management anticipated improvements in both domestic and overseas market prospects. Domestically, supply cuts in the industry will drive Chinese pricing back above cost levels; internationally, the extension of the ALMM exemption for CECEP Solar Energy photovoltaic batteries in India to the end of 2026 will boost overseas shipment recovery in the second half of the year. Management has adjusted the guidance for effective melting capacity in 2026 downward by 3% to 8.13 million tons and emphasized that widespread supply reductions in the industry since July have mainly been driven by marginal manufacturers, who are facing liquidity pressures due to low prices and high inventories. According to Oilchem data, the price of CECEP Solar Energy glass in China has dropped 27% year-to-date to 8.8 yuan per square meter, with producer inventory days increasing by 70% to 57 days over the same period. Management believes that the current low price levels are unsustainable and that XINYI SOLAR is willing to cooperate with peers to promote a return of average selling prices above cost levels through supply discipline. Goldman Sachs expects producer inventories to decrease from 51 days (or 70 GW) in July to 35 days (or 49 GW) in September, supporting a potential 22% increase in glass prices from the second half of 2026 to the first half of 2027. Regarding overseas business, management stated that overseas glass pricing remained stable in the first half of the year, but shipments fell quarter-on-quarter in the second quarter due to local shortages of CECEP Solar Energy batteries affecting module assembly and glass demand following the expiration of the ALMM exemption on May 31. With the extension of the ALMM exemption until the end of 2026, management anticipates a recovery in overseas shipments in the second half of the year and reiterated that plans for overseas capacity expansion remain unchanged, with a new production line in Indonesia, producing 1,200 tons daily, set to go into operation in the second half of the year, increasing the share of overseas capacity from 20% in the first half to 25% by the end of the year.