Performance review
1Q22 achieved a net profit of 114 million yuan, which is basically in line with our expected 1Q22 performance: 1Q22 revenue 8.515 billion yuan, year-on-year-17%, month-on-month + 17%; homing net profit 114 million yuan, year-on-year-90%, month-on-month + 198%, basically in line with our expectations.
1) Paper price rebounded performance month-on-month repair: 1Q22 revenue / net profit declined compared with the same period last year, mainly due to the rapid increase in white cardboard prices in the same period last year, resulting in a high revenue level base + late 1Q22 energy costs doubled, coal prices rose to 1500 yuan / ton; the industry boom gradually rebounded in the middle and later period of 4Q21, and the average price of cultural paper / white cardboard paper rebounded to 6200 yuan / ton at the end of March, driving the company's revenue to + 17%. Under the background of the rising wood pulp price, the company raised the price to hedge the cost pressure, at the same time, the self-sufficiency rate of wood pulp was higher to stabilize the cost fluctuation to a certain extent, and the pulp price pressure was weaker than that of its peers, which promoted the company's net profit + 198%. 2) operating cash flow: 93% lower than the same period last year to 223 million yuan, mainly due to the decrease in operating cash received by the company; the net current ratio is 169%. 3) Asset-liability ratio: year-on-year asset-liability ratio + 0.5ppt to 72.6%. 4) other income year-on-year + 58%: mainly due to the increase in government subsidies related to day-to-day operations received by the company.
Trend of development
The price increase is expected to hedge some of the pressure on energy costs, and the profit pressure on 2Q22 may be maintained. In terms of raw materials, the company has a wood pulp production capacity of 4.3 million tons and a high self-sufficiency rate of wood pulp, and we believe that the profit of homemade pulp is expected to increase in the upward phase of pulp prices; in terms of energy, the sharp increase in 1Q22 coal prices leads to a year-on-year decline in net profit, which should be followed by changes in coal and energy costs. Recently, the company issued a price increase plan, raising the price of cultural paper and white cardboard by 200 yuan per ton from May 1. We believe that if the increase is smooth, it can hedge part of the pressure on energy costs. However, at present, the demand for white cardboard is weak, and the landing of white cardboard is lack of motivation. Looking ahead to 2Q22, we expect that wood pulp prices may fall at a high level, and the company's homemade pulp advantage will be squeezed to some extent; if energy prices remain high, the company's subsequent profits may continue to be under year-on-year pressure.
Double control of energy consumption is good for the medium-term industry pattern. We believe that the stricter control of environmental protection and energy consumption under the dual-carbon background may slow down the approval progress of new papermaking projects, and the supply pressure is less than the market expectation.We expect that under the background of paper replacement plus consumption upgrading, the market demand for white cardboard is expected to rise to 20 million tons, and the supply and demand pattern will remain relatively tight in the medium term. From our research, there is a small probability for small enterprises to obtain relevant indicators of new projects, a leading source of new pulp and paper projects, and a better industry pattern. We believe that the profit center and cash flow of the company in the medium term are expected to be significantly better than those of the previous cycle. promote the company's valuation center to repair.
Profit forecast and valuation
Taking into account the company's costs or continued pressure, we reduce our 2022 net profit by 16% to 1.48 billion yuan, leaving the 2023 net profit unchanged at 1.99 billion yuan. The current stock price corresponds to 202222 A-share 11x pound H-share P 5x/4x. We maintain outperforming industry ratings, downgrade A-share target price by 14% to 7.30 yuan, and lower H-share price by 9% to HK $4. Corresponding to A-share 15x/11x E 15x/11x in 2022 and 23e, implying 38% uplink space. It corresponds to 2022ap23e H-share pact E 8x/6x, implying 29% uplink space.
Risk.
Pulp prices fell more than expected; energy power costs rose higher than expected; downstream demand was lower than expected.