Return to Mother's Net Profit in 2022 Exceeded Our Expectations
The company announced results for 22 years: revenue of 9.608 billion yuan, +0.8% year on year; net profit of 603 million yuan, +9.0% year on year; net profit of Fumo after deduction was 524 million yuan, -1.7% year on year. Due to the decline in raw material prices and investment income, revenue fell short of our expectations, and the net profit of the mother exceeded our expectations.
On a quarterly basis, 1Q-4Q22 companies achieved revenue of 23.53/22.70/26.28/2,357 billion yuan respectively, +4.4%/-13.2%/+9.4%/+4.5%, respectively; and achieved net profit of 1.21/1.11/2.00/171 million yuan respectively, and -2.0%/-46.1%/+99.4%/+38.9%, respectively.
Development trends
The aluminum-plastic film business is growing rapidly. The company's revenue increased 0.8% in '22, and growth has slowed down. We think it was mainly affected by the pandemic. By business, 1) Aluminum-plastic film: Revenue increased 90.8% to 696 million yuan in '22, and sales increased 89.9% to 42.09 million square meters. Customers continued to expand, and production capacity climbed rapidly.
2) Other business: Revenue fell 2.8% year-on-year to 8.912 billion yuan in '22. The trade business declined a lot, but the PET bottle and bottle cap, crown cap and label business achieved steady growth of 8.3%/7.2% respectively, mainly due to the company's smooth transmission of upward pressure on raw material costs.
Higher raw material prices affect profitability. The company's gross margin fell 0.6ppt to 20.6% year on year in '22, mainly affected by rising raw material prices, but 4Q22 gross margin increased 1.7ppt to 20.3% year on year. An improvement trend has been established. On the one hand, it has benefited from falling raw material prices, and on the other hand, from product structure optimization. In terms of period expenses, the company's expenses rate stabilized at around 12.7% during the 22-year period. As a contribution from investment income, the company's net interest rate to the parent in '22 increased 0.47ppt to 6.3% year-on-year.
The aluminum-plastic film business is expected to continue to grow at a high rate, and the traditional main business is expected to recover. 1) Aluminum-plastic film: Aluminum-plastic film can be used in soft-pack lithium-ion batteries and sodium-ion batteries. We believe that with the expansion of the downstream new energy battery industry and the increase in the penetration rate of soft-pack batteries, the aluminum-plastic film industry is expected to maintain rapid expansion. Zijiang enterprises have leading customer advantages and technical advantages, and the production capacity side continues to expand rapidly. The rapid growth of the future aluminum-plastic film business will drive continuous optimization of the company's business structure while shaping the company's new growth pole. 2) Traditional main business: We believe demand in the packaging industry is expected to continue to recover in 2023. As a leading enterprise in the packaging industry, the company has significant customer advantages and scale advantages, and its market share is expected to continue to increase. Furthermore, the prices of raw materials such as PET are showing a downward trend, and there is still room for decline. The company's cost pressure is expected to ease significantly, and profitability is expected to continue to improve.
Profit forecasting and valuation
Considering fluctuations in raw material prices, the 2023 revenue was reduced by 8% to 10.48 billion yuan, and the EPS was lowered by 9% to 0.45 yuan. Introducing the 2024 earnings forecast, we expect the same EPS to increase by 13.5% to 0.51 yuan in 2024. The current stock price corresponds to the price-earnings ratio of 2023/2024 of 12/11 times, respectively. Maintain an outperforming industry rating, consider profit forecast adjustments and valuation switches, and maintain a target price of 7.00 yuan, corresponding to 15/14 times P/E in 2023/2024, respectively, with an upward margin of 26% compared to the current stock price.
risks
Downstream demand growth fell short of expectations; industry competition intensified; raw material prices fluctuated.