Incident Overview

The company released its 2023 semi-annual performance forecast, 2023H1. The company expects to achieve net profit attributable to owners of the parent company of around -50.17 million yuan, a year-on-year decrease of 133.55%. Net profit attributable to owners of the parent company after deducting non-recurring profit and loss was around -59.67 million yuan, a year-on-year decrease of 141.04%.

Analytical judgment:

Affected by the inventory cycle, wood pulp costs remained high in the first half of the year and are expected to improve significantly in the second half of the year.

In the first half of 2023, the paper industry as a whole was affected by new supply-side production capacity and weak market demand. The imbalance in the supply and demand pattern led to a decline in the price of most types of paper, while the price of wood pulp, the main raw material for paper, fell rapidly, causing paper prices to lose further support. The company's performance is under pressure, mainly because the wood pulp purchased by the company is mainly imported, not purchased in stock, and is affected by the procurement cycle. The cost of the company's wood pulp stored in the first half of 2023 is still high, resulting in a high cost of the company's products. At the same time, due to the current complex and severe international situation, the economic environment continues to be sluggish, and high-margin overseas export orders have been drastically reduced compared to the same period last year. We expect that the company's high-priced inventory of wood pulp has basically been digested, and the cost side will improve markedly in the second half of the year. At the same time, the overseas Easter and Christmas procurement seasons are approaching, which is also conducive to the recovery of overall industry demand, and the company's profit and profitability will be greatly improved in the second half of the year.

It is proposed to acquire Zhanjiang China Paper and promote the integrated layout of pulp and paper.

On June 9, 2023, the company announced that it plans to acquire 100% of the shares of Zhanjiang China Paper Co., Ltd., a wholly-owned subsidiary of China Paper, and China Paper's claims on Zhanjiang China Paper in order to make better use of resource synergy and further expand the company's pulp and paper production capacity. In recent years, domestic paper companies have begun to vigorously promote the layout of integrated forest pulp and paper projects, increase their own pulp production and supply capacity, reduce their dependence on overseas wood pulp, and further control costs. At present, Zhanjiang Zhongshi has the relevant prerequisites for building a new production capacity of white cardboard and chemical pulp (according to the EIA announcement of Zhanjiang China Paper Co., Ltd., Zhanjiang China Paper's southern base high-end packaging materials project plans to build a coated white card paper production line with an annual output of 1.02 million tons, 2 production lines with a total annual output of 612,000 tons of chemical pulp, equipped with an annual output of 204,000 tons of calcium carbonate production line, an automated intermediate warehouse and finished product depot for water treatment stations and sewage treatment stations), through Building new pulp production capacity to increase the company's wood pulp self-sufficiency rate will help the company to better control costs and resist the risk of price fluctuations in the pulp market. Furthermore, the land belonging to Zhanjiang Zhongshi is located on Donghai Island in Zhanjiang City, which is adjacent to the company's Donghai Island factory area, which can effectively form scale effects and synergy effects, which will greatly enhance the company's core competitiveness and sustainable profitability in the future. We believe that after the acquisition is completed, the company will use industrial chain synergy to control upstream raw material costs; on the other hand, it will also reduce related transactions and further standardize corporate governance.

Investment advice

We are optimistic about Guanhao Hi-Tech. As a leading enterprise in the specialty paper industry, the product line mainly includes specialty paper, self-adhesive labels, and special white card paper. In the short term, we expect that the company's high-priced inventory of wood pulp has basically been digested, which is beneficial to the rapid recovery of the company's profits in the second half of the year. In the medium to long term, the company's specialty paper business and white card business will both benefit from the company's own expansion of production capacity and an increase in its share in the high-quality customer supply system. Considering the pressure on the company's performance in the first half of the year, we lowered the company's profit forecast. We expect the company's revenue for 23-25 to be lowered from 84.96/98.1/11.136 billion yuan to 81.2/93.47/10.606 billion yuan, and EPS from 0.28/0.33/0.4 yuan to 0.21/0.32/0.39 yuan, corresponding to the closing price of 3.34 yuan/share on July 12, 2023, PE was 15.88/10.28/8.48 times, respectively, to maintain the company.” “Buy” rating.

Risk warning

1) Downstream demand falls short of expectations due to macroeconomic fluctuations. 2) The construction of a new project has a certain construction cycle and may be affected by macroeconomic changes, increased industry competition, changes in industrial policy, and other uncertainties related to the project construction process, and there is some uncertainty. 3) There is some uncertainty about the acquisition of Zhanjiang China Paper.