The company forecasts a net profit of RMB 21.7-2.27 billion for 1-3Q21, which is basically in line with our expectations for the announcement of 1-3Q21 performance forecast: 1-3Q21 achieved a net profit of RMB 21.7-2.27 billion, an increase of 102-111% over the same period last year; of which 3Q21 achieved a net profit of RMB 1.49-249 million, a year-on-year increase of-73% to 56%, and a month-on-month ratio of-82% to 70%, which is basically in line with our expectations.
Weak consumption + weakening of wood pulp cost support, and the sharp drop in paper prices is a drag on the company's profits. Since the beginning of the third quarter, domestic consumption has been weak, the overall demand for white cards has been lower than expected, and inventory has gradually accumulated to a high level. On the other hand, cultural paper is faced with the impact of imported paper from Indonesia, the export to domestic sales and the reduced demand for teaching materials and auxiliary teaching materials brought about by the "double reduction" policy, and the industry inventory also remains high. with the wood pulp price peaking in the middle of the year, the confidence of traders has been further weakened. the price of the company's main products has declined significantly in the third quarter. According to the paper industry news, the average price of white cardboard / cultural paper in the 3Q21 industry has dropped by about 30% and 15% respectively compared with the previous month (trader shipping price). The decline of the company's actual ex-factory price is narrower than that of the market price), and enterprises in the cultural paper industry are generally facing small profits or losses, resulting in a significant decline in the company's net profit per ton of paper. In addition, the spot coal price of 3Q21 has increased by more than 30% month-on-month, and the power generation cost of the company's own power plant may also have increased significantly, suppressing the company's 3Q21 profit margin.
Pay attention to the main points
With the improvement of supply and demand in the peak season, the profit of 4Q21 is expected to be repaired on a month-on-month basis. The proportion of the company's own power plants is high, and there is little pressure on energy consumption and production restrictions in Shandong and Hubei, where the main production bases are located. we believe that power cuts in the second half of the year have little impact on the company's production and sales. Since September, energy consumption controls in Guangdong, Jiangsu and other provinces have brought shutdowns of some paper companies. For example, 4Q21 domestic energy consumption control continues to be stricter, and industry supply may further exceed expectations, which is expected to promote the improvement of supply and demand profits in the peak season. We are optimistic that paper prices will pick up month-on-month with the arrival of peak season, and 4Q21 profits are expected to usher in month-on-month repair.
Double control of energy consumption is good for the medium-term industry pattern. We believe that in the medium term, the further tightening of environmental protection and energy consumption control under the dual-carbon background may significantly slow down the approval progress of new papermaking projects, and the pressure on the supply side is expected to be significantly less than that expected by the market. under the influence of the plastic ban and waste ban, the demand for white cardboard is expected to grow rapidly, and we expect the white card market space to gradually increase from ~ 12 million tons in 2020 to nearly 20 million tons. In the medium term, the supply and demand side of the industry is expected to maintain a relatively tight balance. At the same time, from our research, the probability of small enterprises acquiring new projects such as industrial land, self-provided power plants, environmental protection and energy consumption indicators is very small, the new pulp and paper projects will be dominated by leading paper enterprises, and the industry pattern is expected to be further improved. the company's medium-term profit center and cash flow are expected to be significantly better than the previous cycle, promoting the company's valuation center to repair.
Valuation and suggestion
Due to the paper volume and price assumption of the adjustment mechanism, we reduce the company's net profit of 2021max 22e by 22% 16% to RMB 2.78 billion by 3.07 billion yuan. The current A share price corresponds to 2021max 22e Pmax E as 8.2x/7.5x, and H share price corresponds to 2021max 22e Pmax E as 3.9x/3.6x. We maintain the outperform industry rating and downgrade the A-share target price by 9% to 10 yuan and H-share target price by 8% to HK $5.50, corresponding to 2021max 22e A-share Pmax E is 11x/10x, implying 30% upside space; corresponding to 2021max 22e H-share Pamp E is 5x/5x, implying 29% upside space.
Risk
Wood pulp raw materials fell more than expected; downstream demand was lower than expected; imported paper supply exceeded expectations.
