Citi: Cuts Fuyao Glass Industry Group (03606) H-share target price to HK$66, maintains "Buy" rating, lowers 2026-2028 earnings forecasts.

Citi issued a research report stating that it has lowered the H-share target price of Fuyao Glass Industry Group (03606) from HK$81 to HK$66, and the A-share (600660.SH) target price from RMB79 to RMB63, while maintaining a "Buy" rating. After attending the company's Q3 2026 analyst meeting, the bank lowered its 2026-2028 revenue forecasts by 5% to 12% and net profit forecasts by 17% to 20%, to RMB8.033 billion, RMB9.784 billion and RMB11.293 billion, respectively, to reflect weak global auto production and persistently high freight costs. The bank expects the company's earnings CAGR of 19% for 2026-2028, with the H-share and A-share valued at 1x and 1.1x PEG, respectively. The report noted that in the first three quarters of this year, high-value-added products accounted for 59.95% of Fuyao Glass Industry Group's revenue, up 7 percentage points year-on-year, driving a 6.39% year-on-year increase in average selling price; excluding the US tariff refund in the second quarter, average selling price rose 7.18% year-on-year; excluding exchange losses, average selling price rose 8.1% year-on-year. During the period, the proportions of dimming glass, acoustic glass and head-up display glass increased by 3.69, 1.85 and 1.17 percentage points, respectively, to 6.2%, 7.85% and 12.32%. Citi noted that Fuyao Glass Industry Group's third-quarter results were dragged down by one-off items, including a 0.8 percentage point decline in gross margin due to higher ocean freight rates, RMB78 million in quality compensation recorded in selling expenses, and US$14.3 million in fire costs, which together had a negative impact of approximately RMB150 million on net profit, with part of the losses recoverable through insurance. Management expects the operating margin of its US business to increase by about 1 percentage point each in 2026 and 2027, and reiterated its target of an average selling price CAGR of 6% to 7% over the next decade or so. Looking ahead to the fourth quarter, Citi expects Fuyao Glass Industry Group's net profit to be roughly flat quarter-on-quarter at RMB2.027 billion, with core net profit of RMB2.28 billion, down 5% quarter-on-quarter; it conservatively assumes a fourth-quarter gross margin of 36.7%, down 1.3 percentage points quarter-on-quarter, and assumes fourth-quarter exchange losses of approximately RMB293 million.