Key points of investment:
The company announced its 2023 mid-year report, and the performance was basically in line with market expectations. 2023H1 achieved operating income of 1,605 million yuan, up 4.7% year on year, net profit of 177 million yuan, up 20.0% year on year, net profit of non-return net profit of 170 million yuan, up 23.5% year on year; 2023Q2 achieved revenue of 820 million yuan, up 1.4% year on year, realized net profit of 99 million yuan, up 20.3% year on year, deducted net profit of 0.94 million yuan, up 22.2% year on year.
The revenue side has achieved a steady increase, downstream demand is resilient, and the contribution of overseas markets has increased. 23H1's color printing, aluminizing, film and ink businesses respectively achieved revenue of 12.50/0.23/191/072 million yuan, compared to +4.8%/-19.0%/-4.9%/+4.0%. The main reasons include: 1) The downstream food, daily chemical, pharmaceutical and other mass consumer goods industries are resilient, the company's color printing business cooperates closely with high-quality customers, and demand recovery has led to a steady increase in orders. 2) The film business declined slightly, mainly due to the decline in medical breathable films and consumer electronics protective films due to downstream demand. As new production capacity is steadily put into operation, film revenue is expected to resume growth, including a new functional film material project with an annual output of 8000 tons, a new composite sheet production line technical improvement project with an annual output of 8000 tons, a new functional film material expansion project with an annual output of 22,000 tons, and a new BOPE film project with an annual output of 22,000 tons. It is expected to follow the development trend of single-material easily recyclable materials and continue to open up downstream market demand. 3) Continue to deepen into the industrial chain of multinational companies, and increase the contribution of overseas markets. 23H1's overseas business revenue was 207 million yuan, an increase of 20.3% over the previous year. With its competitiveness in product quality and price, it continues to enter the global procurement supply chain of multinational companies such as P&G, Colgate, and PepsiCo.
On the profit side, the decline in raw material costs has driven an increase in gross margin, and the cost ratio has increased slightly. Crude oil prices and polyethylene and polypropylene prices have all declined since the beginning of '23, driving the company's gross margin to increase. According to Wind, 23H1 British Brent crude oil spot, polypropylene futures, and polyethylene futures were -26.7%/-14.1%/-10.0%, respectively, and -16.1%/-7.4%/-2.1%, respectively. While raw material costs were declining, the company gave full play to the supporting advantages of the industrial chain, used group management, and achieved cost reduction and efficiency through scale effects; while promoting the MES system and refined production process control. 23H1 achieved a gross profit margin of 24.4%, an increase of 3.4 pct over the previous year. Among them, the gross margin of color printing, aluminizing, film and ink businesses was 26.9%/1.8%/1.4%/25.5%, respectively, +6.0 pct/-3.6 pct/-12.7 pct/+4.9 pct. 23H1 achieved a sales expense ratio, management cost rate, and R&D cost rate of 1.8%/4.3%/4.5%, respectively, +0.2 pct. The increase in gross margin boosted the company's net interest rate level. 23Q1 achieved a net profit margin of 11.0%, an increase of 1.4 pct over the previous year.
The environmental protection policy promotes the increase in industry concentration and the development of single materials that are easily recycled and recyclable materials. The company actively invests in R&D to expand new markets and businesses. Food safety and environmental protection policies will become stricter, small and medium production capacity will be cleared, and the concentration of leading companies is expected to continue to increase. The company actively invests in R&D, with an annual R&D cost rate of 4.5% in 23H1. It is jointly engaged in new product development with major customers, focusing on packaging materials that are easy to recycle and can be recycled with a single material. Currently, the main demand is mainly the updating and iteration of film materials from overseas multinational companies, while also promoting the expansion of application scenarios in the film business, such as toothpaste tubes, electronic products, cheese film, etc.
The company is a leading provider of plastic soft packaging in China. It has been operating steadily for a long time. Downstream is the leading mass consumer goods provider, reflecting countercyclical properties. Benefiting from food safety, environmental policies and product upgrading trends, industry concentration continues to increase. In the short term, the company benefits from profit elasticity brought about by the recovery in downstream consumption and the decline in raw material costs. In the medium to long term, the expansion of production capacity continues to bring revenue contributions, the expansion of the film business and overseas markets opens up room for growth, and the product structure upgrade boosts the profit margin center. The company continues its high dividend policy to provide stable returns. The company's net profit forecast for 2023-2025 was raised to 443/505/580 million yuan (original value was 419/479/550 million yuan), respectively +22.0%/+14.1%/+14.7% over the same period. The corresponding PE was 12/10/9X, maintaining the purchase rating.
Risk warning: Downstream consumer demand is weak and oil prices fluctuate.