occurrences
The company released its quarterly report of 2022: the first quarter of 2022 achieved revenue of 8.515 billion yuan, a decrease of 16.57% over the previous year; realized net profit of 114 million yuan, a decrease of 90.34% over the previous year; realized net profit of 100 million yuan after deducting non-return to the mother, a decrease of 91.45% over the previous year; and basic earnings per share of 0.03 yuan.
Guoyuan's opinion:
Multiple adverse factors put pressure on performance. The sharp decline in operating cash flow in Q1 was due to phased fluctuations in paper prices, compounded by the negative impact of epidemic prevention and control on production and sales. The 2022Q1 company's performance was pressured, achieving revenue of 8.515 billion yuan, a decrease of 16.57% over the previous year, and an increase of 17.32% over Q4 last year; achieving net profit of 114 million yuan, a decrease of 90.34% over the previous year, an increase of 197.52% over the previous year. On the profit side, the company's profit margin was greatly squeezed due to the year-on-year decline in sales and unit prices of its machined paper products in the first quarter of 2022, compounded by the rise in raw material prices and the company's loss of 31 million yuan in terms of investment benefits. In terms of cash flow, net cash flow from operating activities was $223 million, a decrease of 93.42% over the same period last year. This is a decrease in operating cash received during the reporting period. The basic benefit per share declined sharply, mainly due to a sharp decline in net profit and the company's deduction of interest on perpetual bonds of about 22 million yuan generated in Q1.
Gross margin fell to a low level in recent years, and the overall cost side remained stable
The 2022Q1 market was disrupted by multiple negative factors. The company's marginal profitability declined marginally, and the composite gross margin fell 12.89 pcts to 16.19% year on year, down 0.02 pcts from last year's Q4, the low in recent years; the overall net profit margin fell 10.66 pcts to 1.55%, up 2.08 pcts from the previous year. In terms of the cost rate for the period, the sales expense ratio increased slightly by 0.20 pcts to 0.88% year on year; the management expense ratio increased 0.02 pcts to 2.46% year on year; the financial expense ratio decreased by 0.37 pcts to 6.48% year on year; and the R&D expense rate increased by 0.46 pcts to 4.04%.
As adverse factors improve, the profit side is expected to bottom up and recover. New production capacity supports long-term performance growth. We believe that the 22Q1 company's profitability was disrupted by multiple adverse factors and reached a low level in recent years. In the future, along with a steady decline in raw material costs and an improvement in the industry supply and demand structure, the profit side is expected to bottom up and recover, boosting the company's fundamental performance. The company adheres to the integrated pulp and paper strategy and continues to increase the self-sufficiency rate of wood pulp to strengthen its cost advantage. In the future, its own cyclical properties may gradually weaken. Construction of the Huanggang Chenming Phase II project has begun. After completion, it is expected to add 1.5 million tons/year of paper production capacity and 520,000 tons/year of mechanical pulp production capacity, which will solidify the company's leading position in pulp paper. With the gradual easing of the epidemic and the further release of the company's production capacity, the future growth trend is improving.
Investment advice and profit forecasting
The company is a leader in pulp and paper integration. The pace of capacity expansion is clear, and its market share in the medium to long term is expected to increase steadily.
We adjusted our profit forecast. We expect the company to achieve revenue of 31,622/343.18/390.65 billion yuan respectively in 2022-2024, net profit of 18.67/20.66/2,499 billion yuan, EPS of 0.63/0.69/0.84 yuan, and the corresponding PE is 8.4/7.6/6.3 times, maintaining the “increase in holdings” rating.
Risk warning
Prices of raw materials have fluctuated greatly; demand growth has fallen short of expectations; and the pace of new production capacity has fallen short of expectations.
