Core viewpoints

23H1 achieved revenue of 4.696 billion yuan / + 21.5%, net profit of 103 million yuan /-65.7%, revenue of 2.74 billion yuan /-1.1% in the second quarter, and net profit of 0.15 billion yuan /-91.2%. Q2 paper industry is under pressure, mainly due to weak terminal demand, slow pace of market recovery, the company's paper product sales and prices are lower than the same period last year, although pulp board, wood chips, coal and other major raw material prices decline, but the improvement of the cost side lags behind, the overall gross profit margin fell. Looking forward to the second half of the year, the overall demand for cultural paper is stable, rising and landing in the off-season, the cost side is gradually released, and profits are expected to be repaired; the restart process of CCER is accelerated, and the company's pre-reserve carbon sequestration project assets are expected to gradually realize the performance.

Event

The company issued a half-year report for 2023: 23H1's revenue is 4.696 billion yuan / + 21.5%, net profit is 103 million yuan /-65.7%, non-net profit is 55 million yuan /-80.2% (non-recurrent profit and loss is mainly government subsidy 55.76 million yuan), cash flow of operating activities is 137 million yuan /-22.2%, basic EPS is 0.06 yuan /-64.7% ROE (weighted) is 1.12%/-2.27pct.

In a single quarter, 2

3Q2 achieved a revenue of 2.74 billion yuan /-1.1%, a net profit of 15 million yuan /-91.2%, and a non-net profit of-0.08 billion yuan /-104.5%.

Brief comment

Paper prices fell first, cost improvement lagged behind, and the company's profits were under pressure in the first half of the year. Q2 performance is under pressure, mainly due to weak terminal demand, slow market recovery, the company's paper product sales and prices are lower than the same period last year, although pulp board, wood chips, coal and other major raw material prices decline, but the improvement of the cost side lags behind. Overall gross profit margin fell. 23H1 has a gross profit margin of 10.34% Universe Mae 7.51pct and a net profit of 2.23%. The rates of sales, management, R & D and financial expenses are 1.19%, 3.40%, 3.29% and 1.73%, respectively, compared with the same period last year.-0.17,0.46, + 0.74 and-0.52pct. In a single quarter, the gross profit of 23Q2 is 8.64%, the net profit is 8.56pct. The net profit is 0.77%/-7.28pct.

Cultural paper sales are stable, wood chip sales, pulp trade volume increased significantly compared with the same period last year. 1) Paper business: the revenue of 23H1 printing paper, packaging paper, industrial paper and office paper was 24.70,4.50,0.38 and 48 million yuan respectively, which was + 10.8%,-5.1%,-5.8% and-25.9% respectively compared with the same period last year, and the gross profit margin was 13.06%, 8.90%, 6.64% and 5.08% respectively. They were-7.55%,-3.64%,-0.39% and-0.65% respectively compared with the same period last year. 2) other businesses: 23H1 wood sales, chemical products, commercial housing, Jian'an labor services, municipal gardens and other businesses reached 7.14,0.83,0.08,1.61,2.67 and 404 million yuan respectively, year-on-year + 219.6%,-24.4%,-88.5%, + 29.4%,-32.1%, + 478.9%. Other businesses increased significantly, mainly due to a sharp increase in wood sales and pulp trade.

Speed up the construction of the 450000-ton cultural paper project to boost the growth of the papermaking sector. By mid-2023, the company has a production capacity of 1 million tons of finished paper, including 800000 tons of cultural paper, 150000 tons of packaging paper, 50, 000 tons of industrial paper and about 500000 tons of pulping capacity.

On August 10, 2023, the company's application for issuing shares to specific targets was accepted by the Shanghai Stock Exchange, and proposed to issue no more than 350 million shares (of which the direct controller, China Paper, intends to subscribe for 10% of the shares issued). No more than 2.5 billion yuan was raised for 450000 tons of cultural paper project (including the reconstruction of 200,000 tons of machine pulp production line) and replenishment, which is expected to be completed and put into production by the end of 24 to the beginning of 25.

CCER restart acceleration, own forest + generation operation, forestry carbon sequestration business is expected to develop rapidly. In 2021, the company established Hunan Senhai carbon sequestration, a wholly-owned subsidiary of carbon sequestration development, relying on its own woodland resources, storing carbon credit, carrying out carbon sequestration business, planning carbon finance, and committed to becoming a leading company in the carbon sequestration industry. to provide partners with "carbon sinks +" integrated solutions. Relying on the experience gained from the first phase of carbon sequestration projects and its long-term forestry management experience, the company has actively distributed the national forestry assets carbon sequestration projects, and has signed a formal development contract area of 38.28 million mu (including 3.06 million mu of farmland carbon sequestration). It is estimated that a total of 50 million mu of forestry carbon sequestration will be signed by the end of 2025. On July 7, 2023, the Ministry of Ecology and Environment openly solicited public opinions on the "measures for the Management of Voluntary greenhouse Gas Emission reduction Trading (trial)". The restart process of the CCER market this year was pushed forward with a strict methodology, which was uniformly solicited, selected and released by the Ministry of Ecology and Environment. It is expected that forestry carbon sequestration is a priority type of CCER project supported by the policy. With the arrival of the second compliance cycle in the national carbon market, CEA carbon prices have risen to 66.2 yuan per ton (September 5, 2023), up 20.3 per cent from the beginning of the year. We believe that after the restart of CCER, the company's pre-reserve carbon sequestration project assets are expected to gradually realize the performance.

Profit forecast: we expect the company's operating income from 2023 to 2025 to be 105.6, 115.8 and 12.87 billion yuan respectively, an increase of 8.0%, 9.7% and 11.1% over the same period last year, and the net profit of returning home is 7.23,8.25 and 936 million yuan respectively, an increase of 17.5%, 14.1% and 13.5% over the same period last year, corresponding to PE of 15.9,13.9x and 12.3x.

Risk hints: 1) the resumption of CCER filing is not as expected: CCER is an important supplement to China's carbon emissions trading market, but the filing application for relevant voluntary greenhouse gas emission reduction projects has been suspended in 2017, resulting in the current market trading category is mainly the amount of emission reduction of stock projects, and the market needs to be further opened and expanded. If CCER resumes filing is not as expected, it will have an adverse impact on the company's forestry carbon sequestration business income recognition. 2) Forestry carbon sequestration development is not as expected: forestry carbon sequestration is one of the main types of CCER. Forestry carbon sequestration price is affected by supply and demand of carbon emission rights market, policy support and other factors. If the carbon sequestration price is lower than expected, it will have an adverse impact on the company's forestry carbon sequestration business. 3) the downstream demand of papermaking is not as expected: the company's cultural paper and packaging paper business is affected by the demand for downstream books, teaching materials and consumption. if the downstream demand recovers less than expected, it will adversely affect the paper price. 4) the risk of refinancing is less than expected: on August 10, 2023, the company's application for issuing shares to specific targets was accepted by the Shanghai Stock Exchange, and the first round of inquiries was received on September 1, 2023. There may be risks such as the refinancing progress is not as expected, affecting project investment and replenishment, and so on.