Further improvement in profitability depends on the recovery of macro demand and the maintenance of "overweight". As we indicated in our previous quarterly outlook, industry profits hit bottom at the beginning of 12 years, and short-term month-on-month improvement is certain; due to the high base of 11Q1, 12Q1 of major paper companies is expected to decline significantly compared with the same period last year. Horizontal comparison, the decline of the company is smaller than that of other papermaking enterprises; the degree of concentration of the containerboard industry is higher, and it has relatively high bargaining power and bargaining power downstream under the leadership of Jiulong and Liwen. 12Q1 benefits from low-cost raw materials, with gross profit margin significantly rising to 15.2% (vs11Q412.9%) from the previous month, while further improvement in future earnings depends on the recovery of downstream macro demand, leading to an effective increase in paper prices. Based on the judgment that Q1 profit hit bottom and then rebounded slightly from the previous month, we expect the company's profit forecast for 12-13 years to be 0.28 yuan / 0.39 yuan respectively. The current stock price (6.91 yuan) corresponds to 18 times PE and 1.31 times PB for 12-13 years, maintaining the "overweight" rating temporarily.

The quarterly results are fully in line with expectations. The company's 12Q1 realized operating income of 679 million yuan, down 14.5% from the same period last year; net profit (belonging to shareholders of listed companies) was 30.8198 million yuan, down 31.8% from the same period last year; equivalent to EPS0.06 yuan, which is fully in line with our expectations in the quarterly report forecast. The net cash flow generated by operating activities per share is-0.23 yuan. The company expects 12H1 net profit to fall 20%, 50%, compared with the same period last year.

The 11Q1 boom is high, and 12Q1 profits are significantly lower than the same period last year. 11Q1 is the peak of the industry boom, 12Q1 due to the overall weak macro demand, the company's product sales prices are down from the same period last year, revenue fell 14.5% year-on-year, and the gross profit margin also narrowed 1.2 percentage points to 15.2%. With the expansion of the scale of operation, expenses have increased to varying degrees during the period, especially the financial expense rate has risen to 4.6 per cent (vs11Q13.7%), further reducing the profit space. Although Sharp Esther and Kangtai loans with 20% stake contributed 6.3493 million yuan in investment income, 12Q1's net profit still fell 31.8% to 30.8198 million yuan compared with the same period last year.

The project of increasing daily use paper will be carried out in an orderly manner. The project under construction by the company increased by 33.0% to 74.5458 million yuan over the beginning of the year, due to the orderly progress of the project to increase 68000 tons of household paper in 11 years. Downstream demand is low and inventories are still high. Inventory increased by 48.4% to 647 million yuan compared with the beginning of the period. although some raw materials were purchased at low prices, it is expected that due to the downturn downstream, the increase in finished goods is still the main factor. Mainly affected by the rapid increase in inventory, the net cash flow generated by the company's Q1 business activities is-127 million yuan.

Core hypothetical risk: downstream demand recovery is slower than expected.