Incident Overview

Shengxing Co., Ltd. released its 2023 semi-annual report. 2023H1 achieved revenue of 3,344 million yuan, +4.52% year-on-year; net profit of 158 million yuan, +34.13%; net profit after deducting non-return net profit of 156 million yuan, +66.51% year-on-year. On a quarterly basis, Q2's quarterly revenue was 1,807 million yuan, +10.15% year on year; net profit for Q2 was 105 million yuan, +56.61% year on year. The net cash flow generated by 2023H1 Company's operating activities was 310 million yuan, +2316.88%, mainly due to a sharp increase in cash received from product sales during the reporting period. The net cash flow from fund-raising activities was -163 million yuan, or -220.84%, mainly due to an increase in mergers and acquisitions paid and loans repaid during the reporting period.

Analytical judgment:

Revenue side: The growth rate is stable, and the contribution of overseas business is accelerating.

In the first half of 2023, overall domestic consumer demand was relatively weak, and economic recovery showed a process of wave development and tortuous progress, which slowed down the company's performance to a certain extent. By product, the can, bottle, and printing processing business, which accounts for 94.47% of revenue, achieved revenue of 3.159 billion yuan, +4.84% over the same period last year.

Looking at the breakdown, the company's three-piece can business actively increased its external market share during the reporting period, strengthened internal process control, and achieved both revenue and profit growth; the two-piece can business continued to promote accelerated technical improvements in existing factories and the construction and implementation of new production capacity (the company's new project, the Ya'an plant, has begun trial production) and further strengthened international market development (the Cambodia Phase III project is expected to be completed in 2023). In terms of the filling business, various filling plants made steady progress during the reporting period, continued to improve product quality, and revenue increased +30% year-on-year; in the aluminum bottle business, the aluminum bottle business maintained a steady growth trend during the reporting period, and it is expected that the second half of 2023 will still have a lot of room for growth compared to the first half of the year. Looking at the subregion, the company's overseas revenue was +45.79% to 361 million yuan, and the revenue share rose from 7.75% to 10.81%. The company's overseas business continued to grow, accelerating the company's global market layout.

Profit side: The gross margin increased significantly. In terms of the cost ratio during the period, there was a slight increase in profitability. The gross profit margin and net profit margin of 2023H1 company were 11.35% and 4.64% respectively, with a year-on-year increase of +2.31 pct and +1.09 pct, respectively. Among them, the gross profit margin and net profit margin for the Q2 quarter were 11.91% and 5.66%, respectively, and +3.14 pct and +1.95 pct, respectively. Profitability increased significantly. We expect 2023H1 raw material prices to decline mainly due to a decrease in raw material prices in 2023H1 (average aluminum price -13.59 year on year, average tinplate price -16.17%) and high gross margin overseas business (domestic gross margin was 10.53%, overseas gross margin was 18.11%) and continued increase in revenue share. In terms of the period cost rate, the 2023H1 company's period expense rate was 5.72%, +0.44pct year on year. Among them, the sales expense rate, management cost rate, R&D expense rate, and financial expense rate were 0.48%, 3.36%, 0.62%, and 1.27%, respectively, and +0.11pct, +0.65pct, -0.22pct, and -0.09pct, respectively.

Investment advice

We continue to be optimistic about Shengxing Co., Ltd. As a leading enterprise in the metal packaging industry, the company's product line mainly includes beverage cans and food cans, including three-piece cans, two-piece cans, and aluminum bottles. In the short term, consumption recovery is progressing steadily. The recovery in downstream demand combined with the downward trend in costs remains unchanged, which is conducive to further improvement in the company's performance. Looking at the medium to long term, the company's three-piece can business is deeply tied to the symbiotic growth of high-quality customers, while the two-piece can business will also benefit from an increase in overall profit brought about by an increase in the industry's tannization rate and improved pattern, as well as the expansion of the company's own production capacity. We maintain our previous profit forecast. We expect the company's revenue for 2023-2025 to be 83.40/105.71/12.345 billion yuan, EPS 0.26/0.34/0.41 yuan respectively, corresponding to the closing price of 4.63 yuan/share on August 27, 2023. PE is 18/14/11 times, respectively, maintaining the “buy” rating unchanged.

Risk warning

1) the risk of large fluctuations in raw material prices; 2) macroeconomic fluctuations causing downstream demand to fall short of expectations; 3) the risk of increased competition in the industry.