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On Monday, Citi reiterated its Buy rating on shares of Xinyi Solar Holdings Ltd. (968:HK) (OTC: XNYIF), maintaining a price target of HK$5.30. The firm based its outlook on the company's preliminary net profit report, which showed an increase of 35-45% year-over-year to HK$1,879-2,018 million for the first half of 2024, aligning with Citi's expectations but falling short of broader market forecasts.
The lower-than-anticipated demand for solar glass sales in June was cited as a contributing factor to the missed market expectations.
Xinyi Solar's stock experienced a 26% decline in June, which Citi believes reflects the market's concerns about diminishing demand. The market's apprehension was further supported by a forecast from SMM that predicted a month-over-month drop of 11.9% in China's monthly module output to 46.5GW in June, although this still represents a 21.2% increase year-over-year. Moreover, a further decline is anticipated in July due to the summer holidays in Europe.
Despite the recent downturn, Citi maintains a positive outlook for Xinyi Solar over a 12-month period. The firm's confidence is rooted in several factors: a projected lower year-over-year growth in industry solar glass supply by 2025, which could lead to potential market consolidation due to generally low profitability; Xinyi Solar's sustained gross profit margin premium of 10-15 percentage points above average industry players; and the stock's attractive valuation metrics, including a 2024 estimated price-to-earnings ratio of 7.4x, a price-to-book ratio of 1.0x, and a dividend yield of 6.4%.
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