CMSC Hong Kong has released a research report stating that FUYAO GLASS (03606) possesses long-term growth potential for auto glass ASP, with new business ventures such as aluminum trim enhancing its intrinsic growth momentum. The core profit forecasts for 2025-2027 remain unchanged (excluding exchange rate impacts). The firm maintains a "Buy" rating and a target price of HKD 86, equating to a FY26 P/E of 20x (maintained), slightly below the historical average plus one standard deviation (21x). FUYAO is one of the top recommended stocks in the auto parts sector. The key insights from CMSC Hong Kong are as follows:

1. Third-quarter results meet expectations despite short-term disruptions. The net profit attributable to shareholders for Q3 2025 was RMB 2.26 billion, increasing by 14.1% year-on-year but decreasing by 18.6% quarter-on-quarter, which aligns with CMSC's expectations but falls short of VA's consensus forecast of RMB 2.7 billion. 2. Revenue: Q3 2025 revenues amounted to RMB 11.86 billion, with year-on-year and quarter-on-quarter increases of 18.9% and 2.7%, respectively, continuing steady growth. In the first three quarters, auto glass revenue reached RMB 30.4 billion, reflecting an 18.2% increase, significantly outpacing the growth rates in China's auto production (+13.3%) and global auto production (<2%).

3. Gross margin: For Q3 2025, the gross margin stood at 37.9%, with year-on-year and quarter-on-quarter declines of 0.9 ppt and 0.6 ppt, respectively, slightly dropping due to increased manufacturer rebates and short-term disturbances from new plant ramp-ups.

4. Expense ratios: In Q3 2025, management/sales/R&D expense ratios were 7.6%/2.7%/4.3%, with year-on-year changes of +0.1 ppt/-1.6 ppt/same, and quarter-on-quarter changes of +0.2 ppt/-0.1 ppt/+0.3 ppt. Sales expenses have improved, with total expenses decreasing by 1.5 ppt year-on-year but slightly rising by 0.4 ppt quarter-on-quarter.

5. Net profit margin: The net profit margin for Q3 2025 was 19.1%, down by 0.8 ppt year-on-year and 5.0 ppt quarter-on-quarter, with the quarter-on-quarter decline influenced by a high baseline from exchange gains in the first half of the year. After excluding these impacts, core profitability remains robust.

ASP still has significant growth potential, with aluminum trim becoming a new growth point, and the new management team is now in place:

1. High-value products drive ASP growth: In the first three quarters, the proportion of high-value-added products reached 52.2%, up by 4.9 ppt year-on-year, leading to a 6.9% year-on-year increase in ASP. The penetration rates of high-value products such as panoramic sunroofs, HUD displays, laminated glass, coated insulation, and ADAS continue to rise. The company expects that auto glass ASP could double over the next decade, driven by increasing penetration of intelligent systems and comfort features.

2. Strong guidance for aluminum trim business: In the first three quarters, revenues from domestic aluminum trim reached RMB 950 million, up 27.7% year-on-year; overseas SAM projects continue to reduce losses. The revenue target for aluminum trim is projected at RMB 5.5 billion to RMB 6 billion by 2028, capturing about one-third of the global market share. New production lines in Fuzhou and Changchun are progressing smoothly, and the new plant in Jiading, Shanghai, is expected to commence operations in the first half of 2026, with construction of the Chongqing facility underway.

3. Positive outlook for the U.S. factory: The profit margin for the U.S. factory in Q3 2025 was 13.6%, down 2.7 ppt quarter-on-quarter due to one-off project adjustments, but remained stable when adjusted. It is projected to be 14.7% for the entire year, up 1.5 ppt year-on-year, as capacity ramp-up continues with new products in preparation for volume production, which is expected to enhance profitability going forward.

4. Cost stability: The average price of soda ash is expected to be around RMB 1,500 per ton for the year, maintaining supply and demand balance without significant fluctuations; natural gas prices are slightly lower in the short term but stable in the long term; shipping costs are likely to continue declining.

5. New management in place: Mr. Cao Dewang has resigned as chairman, succeeded by Mr. Cao Hui, with a management team that brings extensive experience. The firm is optimistic about the younger management team, given the company's clear long-term strategic vision.

Risk factors include the industry’s performance being below expectations.