This report is a buy rating for Fuyao Glass (3606 HK) with a target price of HKD53.50. The stock price has fallen due to concerns about sales momentum slowdown in the domestic auto market, uncertainties arising from the Russia-Ukraine conflict, and potential rise in natural gas prices. However, the report believes that these concerns have been overreacted to and that Fuyao will maintain a high operation rate in 1Q22, supported by auto players re-stocking inventory and Fuyao's market-share gains. The growth story rooted in market-share gain and value expansion in the supply chain remains intact. The report also believes that the potential impact of overseas energy price hikes on Fuyao's production cost is limited due to the use of piped gas for domestic factories and the small part of energy costs in total auto glass production costs.
