In 3Q25, Fuyao’s revenue grew 18.9% YoY with mixed performanceacross regions as domestic automotive glass sales slightly missedwhereas overseas revenue continued to beat with acceleratedmomentum growth. Attributable net income gained 14.1% YoY toRMB2.3bn in 3Q25, modestly below estimates on higher FX loss andtax expenses. 3Q25 gross margin slightly pulled back by 0.6ppt QoQ,mainly due to higher domestic OEM rebates and lower US factory’sprofitability. Although founder Mr. Cho Tak Wong’s step-down fromChairman position comes ahead of a previously anticipated timeline(Jan 2027), we view the top leadership shift as a planned familytransition, aligning with the company’s initiatives to strategicallyoptimise corporate governance and sustainability. In spite of thepotential impact on near-term investor sentiment, we believe Fuyao’slong-term core story (earnings resilience with overseas strength andproduct upgrades alongside the electric transition) stays intact.

Maintain BUY with unchanged TP of HK$83 (20x 2026E P/E).

Key Factors for Rating

Mixed topline performance on weaker domestic sales offset bystronger overseas. 3Q25 revenue advanced 18.9% YoY to RMB 11.85bn, witha modest 2.7% sequential increase from 2Q, broadly in line yet structurallymixed by region. Domestic automotive glass sales rose by 16.2% YoY toRMB5.8bn, roughly consistent with 2Q’s YoY growth, but slightly below ourestimate given the domestic PV output gained traction in 3Q with YoY growthof 14.2%, picking up from 11.7% in 2Q25. 3Q25 overseas automotive glassrevenue growth accelerated to c.29% YoY from c.25% in 2Q25, driven by robustexport demand and sustained new capacity ramp-up in US base. The improvedproduct structure with larger high-value added portfolio mix lifted automotiveglass ASP up 8% YoY in 3Q25, largely in line.

3Q25 gross margin stayed resilient despite moderate QoQ decline. In3Q25, gross margin moderately pulled back by 0.6ppt QoQ to 37.9%, primarilyfrom: i) elevated OEM rebates for domestic sales in the context of anti-involutionregulations (2ppts in 3Q25 vs. 1.5ppts in 2Q25); ii). weakened profitability in USbase stemming from rising energy cost pressures and high comparative base in2Q25 influenced by the recognition of routine government subsidies, albeitimproved capacity utilisation amid the favourable cost environment on furtherdeflation of sodium carbonate. In light of the margin resilience, we deem thefurther improvement in capacity utilisation is expected to provide room for grossmargin recovery in 4Q25.

Overseas operations. SAM: 3Q25 revenue plummeted 53% YoY toEUR24.6m, mainly due to high base from the recognition of EUR22.49m incustomer recoveries in 3Q24. If excluding the one-off impact, 3Q25 revenuecontinued ongoing softness with 19% YoY decline. Yet, SAM’s operating losseswere effectively managed in 3Q25, remaining roughly flat QoQ at EUR0.6m,underscoring disciplined OPEX efficiency controls amid growth challenges. For2026, we anticipate that SAM’s turnaround on bottom line will still hinge on theextent to which revenue scales. US Base: 3Q25 revenue grew by 4% QoQ toUS$303m, extending the growth streaks for three consecutive quarters.

However, 3Q25 operating profit slipped 20% QoQ to US$41 million, withoperating margin down 4ppts to 13.6%. This was primarily caused by increasedelectricity prices and a high base from government subsidy recognition in priorquarter, though partially offset by improved capacity utilisation.

Mr. Cho Tak Wong steps down as Chairman suggests a planned familytransition, though the timing a bit “ahead of schedule”. The companyannounced that Founder Cho Tak Wong will step down from Chairman position,citing the need to optimise corporate governance structure — potentially aheadof a previously anticipated timeline (Jan 2027) tied to his long-term successionplans. His son, current Vice Chairman CAO Hui, will assume the role of Chairmanimmediately. In fact, since Fuyao Glass’s Hong Kong listing in 2015, the markethas consistently focused on the succession of the “top position” in this traditionalfamily enterprise. In July 2015, after CAO Hui resigned as General Manager andconcentrated on participating in company management as a director, Mr.ChoTak Wong has long signaled passing control to the next generation andrepeatedly emphasised CAO Hui’s successor position. Therefore, we view hisearly resignation as a planned family transition within the company’s operationalframework. Post-resignation, he will retain influence as lifetime honorarychairman and board member, shifting from a frontline commander to a spiritualleader and strategic advisor of Fuyao Glass. This move underscores Fuyao’sevolution from founder-centric to institutionalised governance, mitigating keymanrisks, and aligns with the company’s initiatives to optimise governance forlong-term stability.

Valuation

We broadly maintain our 2025-26 net income forecasts at RMB9.32bn andRMB10bn, respectively. Accounting for CAO Dewang’s deeply-rooted authorityand influence on Fuyao’s corporate culture, values, and core strategies, webelieve his ahead-of-schedule step-down as Chairman may trigger near-termshare price fluctuations. Yet, over the mid-to-long term, we deem Fuyao’s corestory (earnings resilience, margin improvement with overseas strength andproduct upgrades) remains unchanged and outweighs leadership noise. Thus,we maintain BUY with unchanged TP of HK$83, based on 20x 2026E P/E.