During the period under review, the outbreak of COVID-19 and the lockdowns in different countries led to the decline in both the demand and average selling price of certain glass products.Nonetheless, Xinyi Glass continued to maintain its leading position in the glass industry, while its core businesses achieved a stable performance. Revenue recorded at HK$7,134.0 million (1H 2019:HK$7,449.9 million). Gross profit amounted to HK$2,441.7 million (1H 2019: HK$2,688.9 million), with a gross profit margin of 34.2% (1H 2019: 36.1%). Net Profit was HK$1,382.4 million (1H 2019:HK$1,491.4 million, excluding the effect of the one-off gain in the total amount of HK$633.4 million recorded at the same period of last year arising from the disposal of certain shares in Xinyi Solar and the dilution of interests due to the of new issue of shares by Xinyi Solar), profit only mildly dropped. Basic earnings per share were 34.4 HK cents (1H 2019: 53.1 HK cents).
The Group has maintained a high dividend payout ratio to reward the support of shareholders. The Board of Directors declared the payment of an interim dividend of 17.0 HK cents per share (1H 2019:25.0 HK cents). The dividend payout ratio was 49.6%.
Dr. LEE Yin Yee, B.B.S., Chairman of Xinyi Glass, said, “Due to the COVID-19 outbreak at the early of this year, the global economy has been unexpectedly hit and the glass industry has been inevitably affected. During the pandemic, we have actively taken measures in line with the anti-pandemic measures announced by the PRC government and have consistently implemented all related actions. By the end of March, production facilities of Xinyi Glass in the PRC have fully resumed operations, and our overall productivity has gradually returned to the level reached in the same period of last year. Hence, the effect of the pandemic on the Group is under control. In this ever-changing and challenging market environment, Xinyi Glass, the largest float glass manufacturer in Asia ( In terms of daily melting capacity ), has continued to lead the float glass, automobile glass and energy-saving low-emission (“Low-E”) architectural glass markets by leveraging its many years of experience and strong business foundation. Together with our competitive advantages such as the strategic location of our industrial parks and economies of scale, the Group has managed to flexibly adjust and overcome the challenges and continued to steadily expand its business.”
Business Review
Float Glass – Selling price of float glass exceeded the level at June of last year; a turning point was reached in industry fundamentals
Both the price and demand of float glass were in a weak range during the first half of the year due to the COVID-19 pandemic. The business performance of the segment was consequently affected. During the period under review, revenue of its float glass business decreased year-on-year to HK$3,291.0 million. Gross profit was HK$812.7 million and gross profit margin was 24.7%. However, with the improvement in the pandemic situation in the PRC, markets have gradually reopened and more property construction projects are set to be completed, thus the demand of float glass has seen a V-shaped rebound. The price of float glass in June has exceeded the level of the same period of last year, and the upward trend is expected to continue in the second half of 2020, the traditional peak season. Moreover, production costs, such as soda ash and energy costs etc, have dropped significantly when compared to the same period last year, so the gross profit of float glass business has upside potential and thus the Group is prudently optimistic about the performance in the second half of the year.
Automobile Glass – Market expansion and marketing strategies have proven effective as orders resume growth trend
Owing to the outbreak of the pandemic and lockdowns in different countries, the Group’s automobile glass business has been slightly affected. In the first half of 2020, the Group has still maintained its position as the largest exporter of automobile glass in the aftermarket of China. Revenue slightly dropped by 2.0% to HK$2,161.1 million. Gross profit remained stable at HK$1,008.4 million and gross profit margin increased slightly to 46.7%, compared with the same period last year. As overseas markets have re-opened, the demand for automobile glass has improved. This, coupled with the Group’s flexible and dynamic marketing strategy, have contributed to a resumption of the growth trend in orders for automobile glass since May. Meanwhile, the Group is also gradually expanding the overseas market outside of North America, which could mitigate the impact of fluctuating tariffs on its export operations and could be favorable to the long-term healthy development of its business.
Architectural Glass – Favorable factors such as accelerated completion of property projects have emerged; Low-E and multi-layered glass products are expected to be growth drivers.
Amidst the overall weak market sentiment in the first half-year, benefitting from the economies of scale supported by its nationwide market coverage as well as its strategies to expand the Low-E architectural glass business to complement the environmental protection developments in the PRC, revenue of the Group's architectural glass business reported a mild decrease of 2.1% to HK$1,681.9 million. Gross profit was HK$620.6 million, while gross profit margin was 36.9%, which was mainly attributable to shipment delays due to the pandemic. Nevertheless, a growth trend in property sales and building completion rate in China began during May and June this year. With the pandemic under control, the economic activities are expected to gradually resume across the PRC. Given the rigid demand of housing, favorable factors such as accelerated completion and sales of property projects will progressively become evident. At the same time, apart from the continued growth in the demand of Low-E glass, the increase in the layers of architectural glass (increasing from a single-layer glass to double-glazed or triple-layer glass) has also spurred the twin growth in the area and volume of architectural glass. This could stimulate overall demand, therefore driving the recovery of the growth of the segment in the second half year and the next year.
Geographic Market Analysis
The Greater China region remained as the Group’s largest geographical market, recording revenue of HK$4,745.1 million and accounting for 66.5% of total revenue. Revenue from overseas markets decreased by 6.4% to HK$2,388.9 million. Revenue from North America increased by 7.3% to HK$953.1 million, making up 13.4% of the Group's total revenue.
Prospects
Looking ahead, the Group will continue to pursue a development strategy aimed at creating a more diversified and differentiated product portfolio, such as expanding a high value-added product portfolio that includes specialty glass, with the aim of improving overall gross profit margin. Differentiated products accounted for more than 35% of float glass product sales in the first half of 2020. In the future, the Group will continue to implement related strategies and focus on increasing the proportion of quality special float glass, so that its overall product portfolio could better cope with the volatile market environment. In addition, the Group is also actively expanding upstream along the industrial chain. Production cost is expected to be further reduced as the Group’s in-house silica-sand mine commences operation.
Regarding production capacity, the Group will adhere to its global expansion layout, that is, to smoothly expand its production capacity in areas with rich resources and a stable supply of power. The annual production capacity of float glass has increased from 5.6 million tons in 2019 to 6.35 million tons at the end of this year, and the new automobile glass production lines located in Beihai, Guangxi is expected to boost the output to the replacement market to 20 million pieces, laying a sound foundation for future development. Besides, the Group has ordered four Low-E architectural glass production lines, increasing the production capacity of related products by over 30% after they start full operation, enabling it to seize the rising enormous market demand for Low-E architectural glass.
Dr. Lee concluded, “Stepping into the second half of 2020, the market has started to revive. We believe that the worst moments of the glass industry have passed. In fact, decreasing material costs such as soda ash and natural gas have actually enhanced profitability. As the market expects the supply and demand of float glass products to become more balanced, and the rigid demand will be released, the management is optimistic about the Group’s business outlook. Looking ahead, as an industry leader, we will work hard to strive for excellence in various businesses, tap the emerging opportunities when the market warms up, and bring satisfactory returns to our shareholders.”
