UBS maintains a Buy rating on Fuyao Glass, saying Q126 results may beat pessimistic expectations

Overview

This report is UBS's company research and earnings preview on Fuyao Glass A shares. The core view is that Fuyao Glass's share price has recently been weak due to concerns over the Middle East conflict, soft domestic passenger vehicle production, and oil and gas costs, but the current valuation has fallen to a five-year low and the market may be too pessimistic about Q126 revenue decline and gross margin pressure. UBS maintains its DCF-based Rmb93.00 target price and Buy rating.

Core views

UBS believes Fuyao Glass may still deliver year-on-year revenue growth and gross margin improvement in Q126. The main drivers include: new orders ramping up from traditional domestic automakers such as Chery and Geely; a higher mix of high-value-added automotive glass products lifting ASP; continued ramp-up at the U.S. phase-two plant improving capacity utilization; and Q126 passenger vehicle and new energy vehicle sales in Europe's five major auto markets rising 5% and 38% year on year, respectively, with Fuyao continuing to gain share in Europe. Over the long term, higher European energy prices may squeeze competitors, further benefiting Fuyao's share gains in Europe and the United States.

Analysis framework

The report assesses Q126 earnings elasticity from five dimensions—demand, share, ASP, overseas capacity utilization, and cost structure—and uses sensitivity analysis on raw material and energy prices to break down the market's gross margin concerns. On valuation, UBS continues to use the DCF method and combines the 12-month target price, current share price, and implied P/E to assess risk/reward.

Methodology notes

• Valuation methodsDCF

  Discounted cash flow valuation

  UBS said the Rmb93.00 target price is based on the DCF method, and it maintains that target price and the Buy rating.

• Profitability analysisGross margin sensitivity analysis

  Impact of energy and raw material costs on gross margin

  The report estimates that if LNG costs at the Fuqing plant rise 50% year on year in 2026, overall gross margin will be dragged down by 0.6 percentage points; if soda ash prices remain at Q126 levels, the 2026 soda ash ASP may fall about 10% year on year and improve overall gross margin by 0.5 percentage points.

• Operating analysisRevenue driver decomposition

  Orders, ASP, capacity utilization, and regional share

  The report breaks down Q126 revenue growth into factors including new orders from traditional domestic automakers, a higher mix of high-value-added products, the ramp-up of the U.S. plant, and share gains in the European market.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• 600660.SS

  Coverage name, Fuyao Glass A shares

  Strengths

  The largest automotive glass supplier by China sales volume; has potential for upgrades into high-value-added products, ASP improvement, overseas share expansion, and U.S. plant ramp-up.

  Weaknesses

  Short-term share price is pressured by the Middle East conflict, weaker domestic passenger vehicle production, and concerns about oil and gas costs; some capacity uses LNG and may be affected by energy price volatility.

  Comparison

  The report argues that the market often links Fuyao's revenue directly to domestic passenger vehicle production, but UBS emphasizes that the company's order mix, product upgrades, and overseas share gains can make its performance better than industry output.

  Risks

  Slower-than-expected growth in high-value-added product sales, customer order cancellations or deferrals, recalls caused by quality issues, slower industry demand, intensifying competition, rising labor or raw material costs, and escalating trade conflicts.

Key data

• 12-month target priceRmb93.00UBS maintains the DCF-based target price.
• Current priceRmb57.68Price date is 2026-04-09.
• RatingBuyThe 12-month rating remains Buy.
• Implied valuation13.8x/11.8x 2026E/2027E PEThe report says the current share price valuation has already reached a five-year low.
• China passenger vehicle productionQ126 down 10% year on yearThis is an important backdrop for bearish views on Q126 revenue growth.
• Europe's five major auto marketsQ126 passenger vehicle/new energy vehicle sales up 5%/38% year on yearUBS believes demand and share gains in Europe can support Fuyao's overseas growth.
• Natural gas cost shareabout 10% of automotive glass COGSAmong Fuyao's domestic plants, only the Fuqing plant uses LNG, accounting for about 15% of total automotive glass capacity.
• Raw material cost shareabout 65% of COGSSoda ash and PVB are the two largest single raw materials.
• Soda ash priceQ126 down 18% year on year, at a five-year lowIf it stays at Q1 levels, it may contribute about 0.5 percentage points to overall gross margin in 2026.
• LNG sensitivityA 50% year-on-year increase in LNG costs at the Fuqing plant could drag overall gross margin down by 0.6 percentage pointsAssumes no cost pass-through.

Impact & implications

If UBS's view proves correct, Fuyao Glass's Q126 results may exceed the market's pessimistic expectations for revenue decline and margin compression, leaving significant room for valuation recovery. Potential catalysts include better-than-expected Q126 results and continued recovery in the China passenger vehicle market since March. On the cost side, PVB procurement prices were locked in by the end of 2025, and low soda ash prices may partially offset LNG upward pressure, so the market's concerns about oil and gas cost drag may be overstated.

Risks

• Slower-than-expected growth in high-value-added product sales.
• Customer order cancellations or deferrals.
• Recalls caused by product quality issues.
• Slower passenger vehicle industry growth leading to weaker auto parts demand.
• Overseas competitors expanding in China and triggering price competition.
• Rising labor or raw material costs.
• Lower-than-expected penetration of all-glass roofs and HUD.
• Macro slowdown causing contraction in the passenger vehicle industry.
• Further escalation of trade conflicts affecting auto parts import and export tariffs.

What to watch

• Whether Q126 revenue, gross margin, and net profit excluding FX impacts achieve year-on-year growth.
• Whether the China passenger vehicle market continues the recovery seen since March.
• The ramp-up pace of new orders from traditional domestic OEMs such as Chery and Geely.
• Changes in the mix and ASP of high-value-added automotive glass products.
• Improvement in capacity utilization at the U.S. phase-two plant.
• The pace of share gains in Europe and the United States.
• Whether LNG procurement prices at the Fuqing plant rise and whether low soda ash prices can persist.