23Q2 revenue was 2.174 billion yuan, same decrease of 1.05%, net profit of return of 115 million yuan, same decrease of 91.21%. The company published its semi-annual report. 23Q2 revenue of 2.174 billion yuan decreased by 1.05%; net profit of 115 million yuan decreased by 91.21%; net profit after deducting non-attributable net profit of $08 billion, same decrease of 104.51%.

23H1 revenue of $4.696 billion increased by 21.47%, mainly due to an increase in pulp sales; net profit of $103 million decreased by 65.66%, and net profit after deducting non-return net profit of $55 million decreased by 80.20%. Mainly due to weak downstream demand, supply shocks brought about by the launch of new production capacity and the increase in the operating rate of small and medium-sized manufacturers, and the decline in sales and prices of paper products. Although raw material prices have declined, improvements on the cost side have lagged behind, and costs have increased slightly.

By category, 23H1 printing paper revenue was 2,470 million, up 10.84%; timber sales revenue was 711 million, 220%, an increase in sales volume; wrapping paper revenue of 450 million, a decrease of 5.06%; municipal garden revenue of 267 million, a decrease of 32.14%, mainly affected by domestic ecological market conditions; other revenue of 404 million dollars increased 478.90%, which is an increase of 478.90%.

By region, 23H1, North China's revenue increased by 100.17%; sales of pulp and wood chips increased by 100.17%; Central China's revenue of 1,141 million yuan increased by 16.32%; East China's revenue of 837 million yuan decreased by 9.45%; South China's revenue of 496 million yuan increased 12.15%; revenue from other regions was 267 million, down 33.29%, and sales of exported paper products decreased by 33.29%.

The advantages of raw material supply and collection are prominent. Cost control expands profit margins. Relying on the centralized procurement platform of the Chinese paper industry, the company has cooperated with the world's high-quality pulp mills for a long time, and has established strategic cooperative relationships with the world's largest pulp mills. The pulp supply is stable and bargaining power is strong. Currently, the company has a paper production capacity of 1 million tons/year, and the supply rate of homemade pulp exceeds 50%. It effectively controls raw material costs and expands profit margins. The company is accelerating the construction of a 450,000 ton cultural paper (including 200,000 tons of chemical mechanical pulp) project, and the additional production capacity is expected to be released in 24. Furthermore, the company's production, supply and marketing system is perfect, and logistics information on raw material procurement and finished paper sales is shared to maximize value.

CCER is about to restart and actively lay out a low-carbon racetrack

In July, the Ministry of Ecology and Environment issued the “Administrative Measures on Voluntary Greenhouse Gas Emission Reduction Transactions (Trial)” (Draft for Comments), which clearly included forestry carbon sinks. Relying on the experience gained in the first phase of the carbon sink project and its long-term forestry management experience, the company actively lays out the national forestry asset carbon sink project. The subsidiary Senhai Carbon Sink has signed a contract to develop 500,000 mu of forestry/farmland carbon sinks, and is expected to generate a net profit of 30 million yuan, further increasing the company's influence in the carbon sink market. Judging from the pilot regions and the current unified national market carbon prices, future trading volume and prices will be on a steady upward trend. The company expects to sign a total of 50 million mu of forestry carbon sinks by the end of '25.

Market demand is weak, profit side is under pressure

23H1's gross margin was 10.34%, down 7.51 pct, net interest rate 2.19%, 5.56 pct, net interest rate of 1.18% after deduction, 6.05 pct. This is due to weak terminal demand and slow market recovery.

The 23H1 sales/management/R&D/financial expense ratio was 1.19%/3.40%/3.29%/1.73%, respectively, and -0.17/-0.46/+0.74/-0.52pct, respectively. Among them, the increase in R&D expenses is an increase in investment in R&D.

Maintain profit forecasts and give a “buy” rating

Yueyang Forest Paper is the leading integrated state-owned enterprise of Forest Pulp and Paper. Based on forest pulp and paper, the industrial chain has been extended, forming a dual-core development industry pattern with “pulp+ecology” as its main business. The company's pulp and paper business is steady, with a supply rate of over 50% for self-produced pulp. The cost side advantage is outstanding. We are optimistic about the long-term profitability brought about by the forestry carbon sink. We expect the company's net profit to be 71/84/990 million in 23-25, respectively, and the corresponding PE is 16/14x/12x.

Risk warning: demand recovery falls short of expectations; market competition intensifies; CCER restart falls short of expectations; raw material prices fluctuate; project construction falls short of expectations, etc.