The growth of income and profit exceeded expectations, and the dividend rate remained at a high level of 50%. The company's revenue in the first half of 2021 reached 4.68 billion yuan, an increase of 39% over the same period last year, mainly driven by the increase in sales of the company's two-piece cans and tinplate business and the rise in the price of raw materials. The company's net profit was 250 million, an increase of 40% over the same period last year. If deducting the impact of one-time income plus Duobao dividends, the net profit is about 210 million, an increase of 27% over the same period last year. The company intends to pay an interim dividend of HK $0.135 per share, with a dividend rate of 50 per cent.

The income of aluminum packaging business is growing rapidly, and the production capacity is increasing steadily. The revenue of the aluminum packaging business in the first half of 2021 was 2.14 billion, an increase of 45%, of which the revenue of two pieces of cans / single-chip cans was 2.05 trillion yuan, an increase of 46% and 27% respectively. We believe that the rapid growth in revenue is mainly due to 1) with the commissioning of many new lines and the gradual recovery of the production pace of Belgian production lines, the company's production capacity has increased steadily and sales volume has increased rapidly; 2) the price of raw materials has increased greatly since the beginning of the year. The price of the company's products may have been raised. In terms of production capacity, the company has trial-produced the second line of Tianjin and Wuhan in the first half of the year, and the new factory in Kunming and the third line of Chengdu will be put into production in the next 1-2 years, and the annual growth rate of production capacity is expected to maintain a high number of units; in terms of product structure, with the upgrading of downstream customer demand, the proportion of the company's beer cans, beverage cans and special-shaped cans continues to increase. In the long run, the company will continue to increase production capacity through the two-line / three-line transformation of the first plant, in order to match the increase in demand brought about by the increase in beer canning rate and the increase in demand for new cans brought about by high-end technology, and revenue is expected to grow steadily in the future.

Tinplate business is growing rapidly in many categories, and the leading edge of key categories continues to expand. The tinplate packaging revenue of the company in the first half of 2021 was 2.25 billion yuan, an increase of 35% compared with the same period last year. Among them, the income from steel drums / milk powder cans / aerosol cans / metal covers / square cans / coated iron / three-piece cans was 6.7%, 3.4pm, 2.9pm, 170,000,000 yuan respectively, an increase of 67% over the same period last year, an increase of 67%, 7%, 51%, 61%, 55%, 21%. The rapid growth of income, in addition to the increase in the price of raw materials, but also due to the strong demand downstream of the company's business, the early layout capacity is gradually released. In terms of steel barrel business, the Yantai plant, a joint venture with major customer Wanhua Group, was put into production in the first half of the year, and the Fujian plant is expected to be built in the second half of the year, and the company's industry leading edge continues to expand; milk powder business, Feihe Harbin new plant and other new production capacity are under construction; aerosol can business, square can business also maintain rapid growth in the strong demand downstream. In addition, the company's plastic packaging business revenue in the first half of the year was 290 million yuan, an increase of 22% over the same period last year, and also achieved rapid growth.

Gross profit margin is disturbed by raw materials in the short term, and the improvement of competition pattern and product upgrading continue to improve profitability. The company's overall gross profit margin in the first half of 2021 was 14.1%, a year-on-year decline of 2.2pct, of which the gross profit margin of aluminum packaging / tinplate / plastic business was 15.6%, 12.4% and 16.7% respectively, year-on-year change-1.2/-3.8/+2.9pct. The decline in gross profit margin of metal packaging is mainly due to the rapid rise in raw material prices and the lag of cost transfer. However, the pricing of most of the company's products is linked to the price of raw materials in the last quarter, and then the fluctuation of gross profit margin on arrival can be controlled as a whole. We are optimistic about the company as an industry leader for a long time to enhance the bargaining power of the industrial chain with the increase of market share and continue to improve the overall profitability with the upgrading of product structure. The company's sales / management expense rate / financial expense rate in 2020 was 4.2%, 4.1%, 0.6%, and 0.5%, 0.8%, respectively, compared with the same period last year. The decline in the financial expense rate is mainly due to the reduction in the financial cost of Jiadobao investment.

Valuation and investment suggestions: we expect the company's operating income from 2021 to 2023 to be 97.3% 103.8 / 11.24 billion yuan, with an increase of 32.4%, 6.8%, 8.3%, and net profit (excluding Kadobo dividends) is 4.0, 5.4, 6.5 million, 16.8%, 23.9, 20.8, respectively. We give the company a target price of HK $6.10, corresponding to 13 times PE in 2021, maintaining a "buy" rating.

Risk hints: raw material price fluctuation risk, beer canning rate increase less than expected risk, customer demand growth less than expected risk.