Key points of investment:

In 16Q1, the growth rate of net profit returned to the mother increased dramatically. The first quarter of 2016 achieved revenue of 328 million yuan, an increase of 8.8% over the previous year; Guimu's net profit was 245.824 million yuan, an increase of 36.2% over the previous year, in line with our expectations.

The decline in pulp price+the company's wood pulp imports mainly provided performance flexibility. The convertible debt-to-equity conversion was completed to save financial expenses, and the profit level increased markedly. Coniferous pulp has continued to decline since 2015. Broadleaf pulp first rose and then fell. Domestic coniferous pulp fell 6.6% at the end of 16Q1 compared to the end of 15Q3; at the end of 16Q1, broadleaf pulp fell 11.0% from the end of 15Q3. The company mainly produces paper for the tobacco industry. The raw materials are mainly imported pulp. It requires 60,000 tons of broadleaf pulp and 40,000 tons of coniferous pulp every year. Raw materials accounted for 53.6% of the company's papermaking costs in 2015, down 2.9 percentage points from 2014. The decline in pulp prices and the company's wood pulp outsourcing mainly provided performance flexibility. Furthermore, at the end of April 2015, the company completed the conversion of convertible bonds to shares. A total of 116 million yuan was converted during the 15Q1 period. By the end of April, a total of 450 million yuan had been converted. As a result, the 16Q1 financial expense ratio was only 1.75%, down 2.8 percentage points from the previous year. The profit level increased in 16Q1, and gross margin increased 0.06 percentage points to 28.1% year on year; net interest rate increased 1.38 percentage points year on year to 7.4%.

Improve coverage and product optimization in the domestic market, and actively explore overseas markets. The company's current main products are tobacco industry paper (production capacity: 40,000 tons of cigarette paper, 50,000 tons of filter bar paper, 40,000 tons of aluminum foil liner paper), mechanical glossy paper, and thin printing paper (17,000 tons of Bible paper). The domestic market achieved 100% coverage of major tobacco markets. By actively promoting R&D projects and the promotion of new process technology, the company successfully completed customer brand development and brand replacement with other manufacturers. The coverage rate of major domestic tobacco markets reached 100%, and 114 bidding projects were successful in 2015. The overseas market of British and American tobacco has entered the substantial supply stage. The company achieved overseas revenue of 134 million yuan in 2015, an increase of 35.3% over the previous year. Since the company started overseas business in 2010, the company's overseas business revenue performance has continued to grow rapidly. Through exhibiting at the World Tobacco North American Expo and the London International Tobacco Fair in the UK, LIP cigarette paper received patent approval from the Republic of South Africa, South Korea, Japan, and Russia, which strongly promoted the sales of the company's products in the international market.

The only listing platform under the Mudanjiang State-owned Assets Administration Commission, the “Opinions on Comprehensive Revitalization of Old Industrial Bases in Northeast China” favors the reform of state-owned enterprises, and its low market value provides room for transformation and imagination. The paper industry as a whole is in a natural clean-up stage. Continued strengthening of tobacco control and oversupply of cigarette paper are putting pressure on the main business in the short term. According to statistics, China's demand for cigarette paper is around 100,000 tons, while the annual production capacity is around 300,000 tons. The overall domestic cigarette supporting series paper market is oversupplied. With the exception of some high-end products, including high-permeable filter bars, the production capacity of low-end products has already exceeded market demand. The actual controller of the company is the Mudanjiang State-owned Assets Administration Commission (which indirectly holds 31.6%), and it is the only listing platform among companies under the State Assets Administration Commission, with a market value of only 3.48 billion yuan. The company suspended trading in July 2015 and plans to acquire the Bohai Commodity Exchange to plan a major asset restructuring with a view to entering the information technology service industry. It ended because it failed to agree on transaction considerations, transaction methods, and some terms of cooperation, but it is expected that the transformation will continue in the future. On April 26, “Certain Opinions of the CPC Central Committee and the State Council on the Comprehensive Revitalization of Old Industrial Bases in Northeast China” was issued, proposing to further push forward the reform of state-owned state-owned enterprises, take industrial transformation and upgrading as the guide, restructure and establish state-owned capital investment and operating companies, solidly push forward strategic adjustments in the layout of the state-owned economy, and explore specific models and ways to develop a mixed ownership economy.

The main business benefits from the high elasticity of falling pulp prices. The small market capitalization+the only listed platform under the State Assets Administration Commission provides transformation expectations and maintains the increase in holdings! The company strives to increase market share, optimize product structure, and actively explore overseas markets. The outsourcing of wood pulp raw materials mainly enjoyed the performance flexibility brought about by falling pulp prices. The company's market capitalization is only 3.48 billion. It is the only listing platform under the Mudanjiang State-owned Assets Administration Commission, and there have been major asset restructuring attempts in the early stages, so continuous transformation can be expected in the future. The company's profit forecast for 16-17 was raised to 0.36 yuan and 0.42 yuan (originally 0.34 yuan and 0.39 yuan). The current stock price (11.66 yuan/share) corresponds to the 16-17 PE 32 times and 28 times respectively, maintaining the increase in holdings!