For the whole of 2012, the company achieved operating income of 1.45 billion yuan, an increase of 9.27% over the same period last year; operating profit of 122 million yuan, an increase of 5.95% over the same period last year; net profit belonging to the owner of the parent company was 90.357 million yuan, an increase of 2.42% over the same period last year; and basic earnings per share was 0.3900 yuan. The annual dividend plan is 1.18 yuan (including tax) for every 10 shares.

In the first quarter of 2013, the company achieved operating income of 278 million yuan, down 3.67% from the same period last year; operating profit of 21.1832 million yuan, down 29.14% from the same period last year; net profit belonging to the owner of the parent company was 17.1335 million yuan, down 26.44% from the same period last year; and basic earnings per share was 0.0700 yuan.

In 2012, the company's production and sales were stable, and its performance increased slightly. The company is mainly engaged in the production and sales of cigarette paper, filter stick paper, aluminum foil lining paper and other cigarette paper. At present, it is the production base of special thin paper in northern China and the largest manufacturer of cigarette paper in China. In 2012, in the face of the low growth trend of the domestic tobacco industry in recent years, the company used its own management experience and product quality to seize the favorable opportunity of downstream integration and reorganization, and achieved the steady growth of the main business. For the whole year, the company's production and sales increased by 5.9% and 6.9% respectively over the same period last year, and its operating revenue increased by 9.3% over the same period last year. At the same time, the composite gross profit margin increased by 2.2 percentage points to 26.8%. In terms of products, cigarette paper, the main product, achieved both revenue and gross profit margin, and the gross profit margin returned to more than 40% after the first half of 2010; while the revenue of filter stick paper increased by 59%, the gross profit margin decreased slightly by 0.5%. From a regional point of view, revenue growth in East China and Southwest China reached 55% and 30% respectively, becoming the two major growth poles. The good sales and profitability of the main products have laid an important foundation for achieving steady growth in annual performance. By the end of 2012, the company's comprehensive market share of cigarette paper products has further increased to 32.11%.

Revenue and gross profit margin declined in the first quarter, and interest on convertible bonds further increased the pressure on expenses. From the first quarterly report of 2013 released on the same day, the company's steady revenue growth trend was curbed, single-quarter revenue showed a year-on-year decline, while the comprehensive gross profit margin fell 0.3% year-on-year and 2.3% month-on-month, ending two consecutive quarters of month-on-month recovery, we judge that it should be related to the rebound in the price of raw wood pulp since the fourth quarter of last year. In terms of expenses, due to the year-on-year effect of interest on convertible bonds, the financial expenses for the current period rose sharply by 33%, and the overall expense rate increased by 1.6 percentage points over the same period last year. In the end, first-quarter results fell 26 per cent from a year earlier. Looking forward to the second quarter, we believe that the changes in revenue and gross profit margin are the core factors. The gross profit margin in the second quarter is more likely to rise compared with the same period last year (22.8% in the same period last year), but the revenue situation is more uncertain. At the same time, R & D investment and other costs are likely to further increase.

Profit forecast and investment rating. It is estimated that the company's earnings per share from 2013 to 2014 are 0.41 yuan and 0.45 yuan respectively. According to yesterday's closing price, the corresponding dynamic price-to-earnings ratio is 15 times and 14 times respectively. Maintain a "neutral" investment rating.

Risk hint. 1) the risk of fluctuation of raw material prices, 2) the risk of market competition exceeding expectations caused by downstream bidding.