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Recently, Fuyao Glass encountered a false alarm.

According to NBC affiliate WDTN and the Dayton Daily News, on July 26 (local time), the U.S. Department of Homeland Security and other law enforcement agencies launched an investigation into Fuyao Glass America Inc. in Moline. According to reports, Acting Special Agent Murphy, who is in charge of the Ohio and Michigan Homeland Crime Investigations, said that the focus of this investigation is on financial crimes, money laundering, labor exploitation and potential human smuggling.

On July 29, A-share listed company Fuyao Glass (600660) issued an announcement in response to the fact that its subsidiary Fuyao Glass America Inc. was raided by the U.S. federal government agencies and supporting local law enforcement personnel at around 10 a.m. local time on July 26, 2024. The announcement stated that Fuyao Glass was not the target of the U.S. government investigation, but the target of the investigation was the third-party labor service company, and Fuyao Glass was only fully cooperating with the U.S. government investigation.

The announcement disclosed that at 5 pm that day, the US government agencies completed their on-site work and left. During the seven-hour search, some production operations of Fuyao Glass America were suspended that day, but the transportation and delivery of goods were not affected. After the search, normal operations were resumed that day, and the production and operation of Fuyao Glass America are currently normal.

From the above-mentioned foreign media reports and Fuyao Glass’s announcement, it can be seen that the “investigation” of Fuyao Glass was not targeted at Fuyao Glass, but was an ordinary investigation by the US government against numerous criminal acts. Fuyao Glass’s US branch was only cooperating with the relevant investigations of US government agencies.

But this incident still affected the stock price of Fuyao Glass.With the disclosure of the investigation, Fuyao Glass closed at 44.46 yuan on July 29, down 5.92%. The stock price hit a new low since April 17 this year. The 5.92% drop in the stock price in a single day also set a record for Fuyao Glass's single-day stock price drop in recent years. As of the close of July 29, Fuyao Glass's stock price fell 28% from its 2021 high of 61.51 yuan. The total market value during the same period was 116 billion yuan, a decrease of 44.5 billion yuan from the high point.

Fuyao Glass enters a period of rapid growth

On July 29, Fuyao Glass also released its interim results for the first half of 2024. The results report stated that Fuyao Glass's revenue in the first half of 2024 was 18.34 billion yuan, a year-on-year increase of 22.01%; net profit attributable to shareholders was 3.499 billion yuan, a year-on-year increase of 23.35%; and basic earnings per share was 1.34 yuan.

Judging from the performance report released by Fuyao Glass, Fuyao Glass once again recorded growth in both revenue and profit during the reporting period, and this time both recorded growth rates of more than 20%. In fact, there were early signs that Fuyao Glass would record high growth in the first half of the year. In the first quarter report released not long ago, Fuyao Glass's revenue increased by 25.29% year-on-year, and its net profit increased by as much as 51.76% year-on-year.

Fuyao Glass's rapid growth in the first half of 2024 is the first time that its revenue and net profit have increased by more than 20% in the same period, following the 42.14% and 83.54% increases in the first half of 2021. The revenue and net profit growth in the previous two years were 11.79%, 34.63% and 16.49%, 19.07% respectively.

According to the financial report, in 2023, Fuyao Glass's revenue and net profit also increased.The annual revenue was 33.16 billion yuan, an increase of 18.02% year-on-year, and the net profit was 5.629 billion yuan, an increase of 18.37% year-on-year. Since 2020, due to the global public health incident, Fuyao Glass's revenue has declined by 5.67% and its net profit has declined by 10.27%. Since then, there has been no decline in revenue and net profit. In 2021 and 2022, Fuyao Glass's revenue was 23.6 billion yuan and 28.1 billion yuan, respectively, a year-on-year increase of 18.57% and 19.05%. The net profit in the same period was 3.146 billion yuan and 4.756 billion yuan, a year-on-year increase of 20.97% and 51.16%.

Through the main data of Fuyao Glass's financial reports in the past three years, we can find thatSince 2021, Fuyao Glass has entered a period of high growth, with both revenue and net profit growing at double-digit rates. In the first half of 2024, Fuyao Glass's high growth momentum continued.

According to the financial report, Fuyao Glass's net profit margin in 2023 hit a new high since 2018. In 2023, Fuyao Glass's gross profit margin was 35.39%, which was a certain increase from 34.03% in 2022, but it declined compared with 2021, 2020 and 2019, and even in the past decade, it was only higher than 34.03% in 2022. Compared with the gross profit margin of more than 40% before 2018, the decline is a bit large.

According to the financial report, since 2018, Fuyao Glass's net profit margin has been below 14% for three consecutive years, and it did not rise until 2022 to 16.91%. The net profit margin of 16.98% in 2023 is the highest since 2018. According to the relevant data of Fuyao Glass's 2024 performance report, in the first half of 2024, Fuyao Glass's net profit margin was 19.07%, which was an increase from the net profit margin of 18.87% in the same period of 2023.

The Eagles may not dare to touch Fuyao Glass

When Cao Dewang decided to set up a factory in the United States, many Chinese people did not understand it because from the perspective of labor costs, the labor costs in the United States are much higher than those in China, and setting up a factory in the United States also faces huge unknown risks. Facts have proved that Cao Dewang's strategy of setting up a factory in the United States is quite visionary. Setting up a factory in the United States is conducive to expanding its global market share.

Public data shows that Fuyao Glass's global market share in 2023 was 40%, and its domestic market share exceeded 70%.In the field of panoramic skylight glass with a larger area, Fuyao Glass has a global market share of over 60% and a domestic market share of nearly 90%. Fuyao Glass has become the undisputed leader in the industry.

The industry concentration of automotive glass is very high. The market share of the top four in the world exceeds 80%, which is far higher than that of most industries. Fuyao Glass is far ahead in China. The second-ranked Xinyi Glass has a large gap with Fuyao Glass in terms of revenue, net profit, total market value and market share. In the short term, Fuyao Glass's position as the "number one in the industry" in China is unshakable.

Since its establishment, Fuyao Glass has gradually achieved domestic substitution of automotive glass imports. Currently, Fuyao Automotive Glass's products cover more than 70 countries and regions around the world. It has established modern production bases and business institutions in many countries and regions. Its global market share is also increasing year by year. It has the competitiveness to compete with world automotive glass companies such as Asahi Glass, Nippon Sheet Glass, and Saint-Gobain.

In fact, Fuyao's overseas business expansion began as early as the 1980s. Starting from the initial overseas parts market, Fuyao gradually expanded to the overseas OEM market, and gradually developed from domestic production and export to overseas construction of production capacity to achieve overseas localized supporting models.

The importance of Fuyao Glass to the US auto industry is self-evident.Since it first sold its products to the North American market in 1991, Fuyao Glass has not only been making intensive efforts in the U.S. market, but has also built a full-process supply chain system from raw glass to finished automotive glass by establishing production bases, R&D centers and supporting companies.

Among them, Fuyao's American factory located in Ohio, as the world's largest single-unit automotive glass factory, has not only become one of the important local economic pillars, but also an important supply chain enterprise for the US automotive industry.In the United States, from luxury brands to mainstream models, many well-known automakers such as General Motors and Ford rely on the high-quality automotive glass provided by Fuyao Glass.

These glasses not only meet the basic safety and light transmittance requirements, but also show excellent performance in terms of sound insulation, heat insulation, and UV protection, providing a more comfortable and safe driving environment for drivers and passengers. Fuyao Glass's continuous technological innovation, such as smart dimming glass and enhanced safety glass, has promoted the process of intelligence and high-end development of the US automotive industry. It can be said that the US automotive industry is currently very dependent on supply chain giants such as Fuyao Glass.

Zhang Zhiyong, an automotive journalist, said that as a leader in the glass industry, Fuyao Glass has expanded overseas by supporting domestic joint venture automakers, and has completed its overseas expansion and internationalization. In particular, it has been deeply involved in the US market for many years, and its importance to the US automotive industry system is self-evident. If the US wants to move Fuyao Glass, it may have to first consider whether the industry can bear it.

Why go deep into the tiger's den?

Fuyao Glass's overseas factories have continued to achieve high growth since 2020.

According to the financial report, the first phase of Fuyao Glass's US factory, which was put into operation in 2016, achieved revenue of 721 million yuan in its first year of operation. In 2019, Fuyao Glass's US factory achieved revenue of 3.907 billion yuan, more than five times the 721 million yuan in 2016, with a three-year compound annual growth rate of 76%.

In 2020, the sudden black swan health incident dealt a heavy blow to the global manufacturing industry, and Fuyao Glass's US factory was not immune. According to the financial report, the revenue of Fuyao Glass's US factory fell to 3.254 billion yuan this year, a year-on-year decline of 16.7%. It also caused Fuyao Glass's overall revenue to decline by 5.67%. But overall, Fuyao Glass is in a relatively stable state both in its domestic and US factories. In 2021, Fuyao Glass's US factory returned to the growth track. As of 2023, Fuyao Glass's US factory had revenue of 5.57 billion yuan, a year-on-year increase of 21.83%, higher than Fuyao Glass's overall revenue growth of 18.02%. Since 2016, the revenue growth of Fuyao Glass's US factory has been higher than the overall revenue growth of Fuyao Glass.

It can be seen from the financial report that the net profit margin of Fuyao Glass's US factory was not stable enough before 2021. In 2017, just after it was put into production, the net profit margin of Fuyao Glass's US factory was about flat. In 2018, the net profit margin soared to 7.21%. However, in 2019, the net profit margin fell to about 5%. In 2020, affected by public events, Fuyao Glass's US factory fell back to a break-even state. Since 2021, the net profit margin of Fuyao Glass's US factory has risen for three consecutive years, and its net profit has climbed to 494 million yuan in 2023.

The proportion of revenue from Fuyao Glass's US factory to Fuyao Glass's total revenue climbed from 4.3% in 2016 to 18.8% in 2019. Since then, the revenue of the US factory has accounted for about 18% of the revenue. In 2023, the US factory's revenue accounted for 17%. This year, the net profit of the US factory was 494 million yuan, accounting for 9% of Fuyao Glass's total net profit. Fuyao Glass's US factory has not only become the cornerstone of Fuyao Glass's expansion of overseas markets, but also brought real profits to Fuyao Glass. The high growth of Fuyao Glass's net profit of 20.97%, 51.16% and 18.37% in the past three years is not unrelated to the growth of the net profit of the US factory.

The capital market mainly uses performance as a reference. The "investigation blunder" of Fuyao Glass only caused a brief panic in capital. Fuyao Glass urgently released its 2024 performance report, perhaps hoping to dispel investors' concerns through performance. In fact, it did play the expected role.

With the disclosure of Fuyao Glass's announcement and the end of its "investigation", Fuyao Glass's stock price has begun to recover. After all, as a leading company in the glass industry, Fuyao Glass's fundamentals have not been shaken in the slightest.

Author|Meng Xiao