The company is a domestic specialty paper enterprise. Its main business is special paper and high-grade coated white cardboard. In '22, the company achieved revenue of 8.086 billion yuan, an increase of 9.30% over the previous year; achieved net profit of 387 million yuan, an increase of 179.07% over the previous year, and achieved net profit of 376 million yuan after deduction, and basic earnings per share of 0.21 yuan/share.

Profit increased month-on-month in the fourth quarter of '22, with increased sales driving revenue growth: 4Q22 achieved operating revenue of 2.197 billion yuan, an increase of 12.55% over the previous year, and achieved net profit of 135 million yuan (1Q22/2Q22/3Q22 was 0.38/111/102 million respectively), and profit increased month-on-month. Sales of specialty paper, stickers, and white cardboard in 2022 were 19.7, 92,000, and 613,000 tons respectively, up 15.14%, 10.48%, and 2.77% from the previous year. We believe that increased sales will drive continued revenue growth. As the company continues to optimize its product structure and improve production capacity efficiency, it is expected that the revenue scale will increase further.

Gross margin declined year-on-year in '22, cost optimization during the period, and net interest rate increased: the company's gross profit margin in '22 was 14.22%, down 4.46 pct from the previous year. Among them, the gross margin of specialty paper, self-adhesive, and white cardboard changed -1.11pct, +3.48pct, and -8.80pct, respectively. The gross margin of white cardboard fell significantly, causing the overall gross margin to drop markedly.

In terms of the cost rate for the period, the sales expense rate in '22 fell 0.20 pct to 0.96% year on year, the management expense rate fell 0.37 pct to 3.08% year on year, and the R&D cost rate fell 0.73 pct to 3.88% year on year. We think that the cost was diluted mainly due to the scale effect brought about by the absorption of Guangdong and Huabao packages; the financial expense ratio fell 0.32pct to -0.16% year on year, mainly due to a decrease in loan amounts and an increase in interest income. Under the combined influence, the company's net interest rate increased 0.50 pct to 5.86% year on year.

Promote the construction of a new base and expand production capacity as scheduled: Up to now, the company's papermaking production capacity includes 185,000 tons of special paper base paper and more than 600,000 tons of white cardboard. In addition, it also has 270,000 tons of coated production lines, 150,000 tons of latex production capacity, 20,000 tons of calcium carbonate production capacity, 260 million offset printing production capacity, and 100 million meters of soft gravure production capacity. The company continues to promote the 300,000-ton high-grade coated white cardboard project, which is expected to be completed and put into operation in the first half of 2024. In terms of new materials, the company has signed 9 industry-university-research cooperation projects with various scientific research institutions and universities, and some R&D projects have made phased progress. We believe that the new production capacity will open the bottleneck in white cardboard production capacity. The company's white cardboard production capacity utilization rate was high in '22. It is expected that the new production capacity will be rapidly digested after it is launched, driving performance growth.

Profit forecast and rating: We expect the company's net profit for 23-24 to be 539 million yuan and 666 million yuan respectively, with year-on-year growth rates of 39.2% and 23.6%. The closing price on April 4 corresponds to 23-24 PE 14.9 and 12.1 times. Referring to comparable companies, the company was valued 16 to 18 times PE in 23, corresponding to a reasonable value range of 4.64 to 5.22 yuan, giving it a “superior market” rating.

Risk warning: raw material costs fluctuate greatly, and downstream demand is weak.