Guoyuan International has issued a research report upgrading its target price for Xinyi Glass (00868) to HK$12.5 per share. The new target implies price-to-earnings ratios of 16 times for 2025 and 14.3 times for 2026, representing a potential 14% upside from the current share price. The firm maintained its "Hold" rating on the stock.

The report noted that by 2026, the company is expected to develop and sell more high value-added glass products suitable for both new and existing vehicle models. It will also significantly increase production capacity at its overseas manufacturing bases, with the growth trend anticipated to continue.

Key points from Guoyuan International's analysis include:

For the full year 2025, the company reported a net profit attributable to shareholders of RMB 2.729 billion, down 19% year-on-year. Revenue reached RMB 20.829 billion, a decrease of 6.7% compared to the previous year. The decline in profit was primarily attributed to lower prices for float glass, reduced sales of architectural glass, and impairment losses on financial assets related to polysilicon. Excluding the impairment factors, the company demonstrated strong operational resilience, outperforming market expectations.

Basic earnings per share stood at 62.31 cents. A final dividend of 21.5 HK cents per share was proposed, bringing the total annual dividend to approximately 34 HK cents (including an interim dividend of 12.5 HK cents). The dividend payout ratio remained stable at around 49.8%.

The automotive glass segment performed notably well. Revenue from this business increased by 8.8% to RMB 6.861 billion, with the gross profit margin rising by 1.8 percentage points to 54.1%. This improvement was driven by new orders from domestic automakers, proactive marketing in the aftermarket segment, and lower raw material costs.

Revenue from the float glass segment was RMB 11.514 billion in 2025, down 10.8% year-on-year, with a gross margin of 18%. Despite a 20% year-on-year decline in the industry's average selling price, Xinyi Glass exhibited significantly stronger profit resilience than the industry average. This was achieved by increasing the proportion of differentiated products, implementing cost reduction and efficiency measures, and expanding its overseas production footprint.

By the end of 2025, the industry's daily melting capacity for float glass had decreased to 147,000 tonnes per day, down 8.1% from the previous quarter. Although inventory accumulated after the 2026 Spring Festival, with recent inventory days exceeding 30, the weak demand and price pressures leading to cash losses for most industry players are expected to accelerate capacity rationalization. This suggests a potential improvement in the supply-demand dynamics for float glass.

The company's cash and financial position improved substantially. Bank and cash balances at the end of 2025 stood at RMB 2.918 billion, a 70.7% increase year-on-year. The net gearing ratio decreased by 11.2 percentage points to 5.1%, primarily due to debt repayment from operating cash flow and a significant reduction in capital expenditure.