Performance review

1-3Q22 performance meets our expectations

The company announced 1-3Q22 results: income 7.252 billion yuan, year-on-year-0.3%; return to the mother net profit 433 million yuan, year-on-year + 0.5%; deduction of non-return net profit 373 million yuan,-12.9% year-on-year. The performance is in line with our expectations.

On a quarterly basis, 1Q/2Q/3Q22 achieved 2.628 billion yuan in revenue, + 4.4%, 13.2%, 9.4%, and net profit of 1.21 million, 1.1 million, and 99.4%, respectively, compared with the same period last year.

Trend of development

Revenue returned to growth in the third quarter. The company's 1-3Q22 revenue fell 0.3% compared with the same period last year. 3Q22 revenue increased by 9.4% year-on-year, and the results returned to growth in the third quarter. On the one hand, due to the rapid recovery of downstream beverage consumption, the company's 3Q22 PET bottle, bottle embryo and plastic anti-theft cap business income increased by 11.3% and 11.1% respectively; on the other hand, the company's aluminum and plastic film continued to increase rapidly, and 3Q22 revenue also increased by 103.7%.

The rise in the price of raw materials led to a decline in gross profit margin. The company's 1-3Q22 gross profit margin fell 1.3ppt to 20.67% compared with the same period last year. 1.6ppt dropped to 20.91% compared with the same period last year. We believe that on the one hand, the epidemic in East China affected the company's capacity utilization in the first half of the year, on the other hand, although the prices of some raw materials fell somewhat, they were still high compared with the same period last year. The price of 1-3Q22PET slices rose 29% compared with the same period last year. We expect that the increase in the proportion of aluminum-plastic film business will have a positive effect on the profitability of the company. In terms of period expenses, the period expense rate of 1-3Q22 is year-on-year-0.1ppt to 12.89%, of which the sales / management / finance / R & D expense rate is respectively year-on-year-0.2/+0.1/-0.1/+0.1ppt to 2.23% to 6.39% and 3.25% respectively. The company's 1-3Q22 net interest rate increased by 0.05ppt to 5.97% compared with the same period last year, and the net interest rate of 3Q22 increased by 3.44ppt to 7.61% compared with the same period last year.

We are optimistic about the development space of the company's aluminum and plastic film business, and pay attention to the recovery of packaging business and the price changes of raw materials in the short term. The demand for lithium batteries downstream of aluminum-plastic film continues to grow high, and the permeability of superimposed flexible bag battery increases, which promotes the rapid release of demand for aluminum-plastic film. We expect that the global demand for aluminum-plastic film industry will reach 750 million square meters in 2025, and CAGR 2021-2025 will reach 26.8%. In addition, the domestic lithium battery industry chain is perfect and the cost advantage is significant. Zijiang and other domestic manufacturers quickly make up for the technology deficiency and rapidly increase their market share. The company has significant customer advantages. With the deepening of cooperation with BYD, CATL and other head battery manufacturers and the development of new customers, the aluminum-plastic film business is expanding rapidly. In terms of production capacity, the Maanshan project has been trial-produced in the middle of this year, the construction of the Zizhu project is advancing in an orderly manner, and the production capacity is expanding rapidly. It is optimistic about the development prospect of the company's aluminum-plastic film business, and with the increase of the proportion of aluminum-plastic film business, the company's profitability is expected to continue to improve.

Profit forecast and valuation

Keeping the earnings forecast unchanged, the current share price corresponds to a price-to-earnings ratio of 15 to 10 times 2023 respectively. Maintain the outperform industry rating, taking into account changes in market risk appetite, cut the target price by 15% to 7.00 yuan, corresponding to 2022 prime 2023 20 times / 14 times earnings, with 40% upside compared to the current stock price.

Risk.

The price of raw materials has risen sharply; production capacity has climbed less than expected; and the epidemic has repeatedly led to demand fluctuations.