[Investment points]

In order to accelerate the transformation and upgrading to become a new concept packaging provider of “Internet+paper packaging”, the company built new projects such as 800,000 tons of high-grade corrugated paper and 110,000 tons of cluster packaging cardboard. Currently, the 800,000-ton advanced corrugated paper project is under intense construction. It is expected that it will be put into operation by the end of 2018. After production, the company will have a production capacity of 2.1 million tons of raw paper, with significant improvements in scale efficiency and efficiency.

On March 27, 2018, the company announced its 2017 annual results: operating income was RMB (5.782 billion yuan below, up 36.9% year on year; net profit attributable to parent company was 396 million yuan, up 221.7% year on year; the board recommended a year-on-year dividend of HK7.0 cents per share). Among them, Guimu's net profit exceeded expectations. The company's previous performance forecast stated a year-on-year increase of about 200%.

In 2017, the company produced 1.29 million tons of raw paper and sold 1.2 million tons of raw paper. Paper sales increased 37.3% year-on-year. The company's comprehensive gross margin in 2017 was 21.6%, up 2.0 percentage points from 2016, and gross margin was at an all-time high.

[Investment advice]

We raised Sunshine Paper's profit forecast, predicting that Sunshine Paper's 2018-2020 sales revenue will be RMB 70/93/96 billion; net profit attributable to the parent company will be 504/690/716 million yuan; EPS is RMB 0.62/0.84/0.87; the corresponding PB is 0.80/0.64/0.53. The current value is seriously underestimated. We maintain our “buy” rating for Sunshine Paper, with the target price of HK$3.70 unchanged.

[Risk Reminder]

Performance is greatly affected by changes in the prices of raw materials and white kraft cardboard;

Uncertainty about new construction and production expansion plans;

Environmental policies, inventory risks, etc.