In 4Q25, Fuyao reported in-line revenue growth of 14.1% YoY but with mixed regional dynamics. Gross margin slipped 0.9ppt QoQ to 37%, slightly below our projections, affected by extra rebates domestically and a retreat in overseas profitability. Neutralised by lower FX losses and tax expense, 4Q25 attributable net income stayed flat QoQ at RMB2.2bn, align with our forecasts. For overseas facilities (mainly SAM and US bases), both operations showed volatility in revenue or margin in 4Q25. To reflect domestic market headwinds to both revenue and margins, we tweak our net profit forecasts for 2026/27 by 3-5% to RMB9.5bn and RMB11.1bn, respectively. While capacity mismatches in the domestic market led to a temporary pullback in utilisation this year, we deem Fuyao’s long-term growth narrative stays robust, underpinned by its competitive cost disciplines, global diversification, and innovative strengths that secure its leadership in the worldwide automotive glass industry. Maintain BUY.

Key Factors for Rating

Topline largely in line whereas regional dynamics mixed. Fuyao Glass reported 4Q25 revenue of RMB12.5bn, up 14.1% YoY and 5.3% QoQ, broadly in line but with mixed regional performance. By region, fueled by the ramp-up of additional capacity, domestic automotive glass revenue grew 13.4% YoY to RMB6.9bn, significantly outstripping the modest 2.2% YoY increase in domestic passenger vehicle output and exceeding our prior forecasts. Overseas automotive glass revenue YoY growth tapered to c.18% from 3Q25’s 29%, alongside a QoQ contraction, missing our estimates on the back of subdued overseas shipments amid seasonality softness. For the full year, ASP of automotive glass continued upward trajectory, rising 8.1% YoY to RMB247 per sqm, smashing the company’s original guidance and reflecting a favourable product mix shift toward higher-value-added offerings.

4Q25 gross margin slightly missed on domestic rebates and FGA margin dip. 4Q25 GPM declined 0.9ppt QoQ to 37.0% in 4Q25, slightly below our estimates. This is mainly stemmed from: (1) greater extra year-end rebates on domestic automotive glass sales, impacting margins by approximately 0.6ppt; and (2) a modest softening in FGA’s profitability. Even with these factors, the company’s tight cost controls and effective capacity leverage fostered underlying resilience. Moving into 2026, margin dynamics may encounter challenges from mismatched domestic supply and demand, caused by the full commissioning of Hefei and Fuqing bases, potentially causing short-term utilisation moderation in a tepid PV market. Nonetheless, favourable raw material stability (i.e. sodium carbonate) should offer a counterbalance.

Overseas operations presented volatility in 4Q25. German SAM: SAM revenue fell 37% YoY and 23% QoQ to EUR18.9m in 4Q25, as operating losses expanded markedly QoQ to EUR8.7m, beyond our anticipation. The deterioration was mainly driven by EUR6.3m in one-time expenses tied to workforce restructuring and optimisation initiatives. Yet, we view this revenue shrinkage and ongoing deficits highlight the firm’s intentional scale-back strategy. With the SAM restructuring nearing completion, we anticipate a phased transfer of production to China-based plants, setting the stage for the unit to achieve profitability in 2026 on schedule. U.S base (FGA): 4Q25 revenue advanced 26% YoY to US$270m, building on its strong momentum. That said, operating margin moderated to 8.8% from 3Q25’s 13.6%, perhaps due to year-end oneoff accruals under our estimates. But for the full-year 2025, US operations performed solidly with topline rising 25% YoY and margin improving from 13.1% in 2024 to 13.3%, which came in line with management original target. Looking ahead, we believe US bases will continue to serve as a cornerstone of profitability, supported by robust order intake and ongoing production ramp up.

Valuation

To reflect domestic market headwind and potential overseas slowdown, we trim our 2026/27 revenue forecasts by 2% to RMB51.2bn and RMB58.3bn. Correspondingly, we tweaked our net profit forecasts by 3-5% to RMB9.5bn and RMB11.1bn, respectively.

We see 2026 as an interim phase marked by temporary supply-demand strains, stemming from capacity release of Hefei and Fuqing new facilities against a backdrop of muted auto demand domestically. While some investors flag risks from consumer electronics glass entrants like Lens Technology, Fuyao’s entrenched advantages — encompassing complete vertical control, tight cost structures, cutting-edge premium developments, and global footprint diversification — should safeguard its dominant position in auto glass landscape. With undemanding valuation (15.1x/16.2x 2026E P/E for H/A shares) and solid long-range outlook, we maintain BUY with TP of HK$83/RMB84 (equivalent to 20x/23x 2026E P/E).