Main points of investment

Zhongshun Jierou disclosed 23Q3 performance:

2023Q1-3 achieved revenue of 6.823 billion yuan, year-on-year + 11.6%, net profit of 165 million yuan, year-on-year-39.7%, non-return net profit of 142 million yuan, year-on-year-43.2%, + 22.4%, net profit of 81 million yuan, + 72.7%, and non-return net profit of 69 million yuan, + 128.3%. 23Q3's revenue-side growth has picked up, while profit elasticity has been released rapidly as pulp costs have been reduced.

High-end & new retail channels, Q3 company revenue growth picked up in the same period last year, the company took the initiative to raise prices under the pressure of high pulp prices, and took the initiative to withdraw from some inefficient channels and product lines, disturbing the company share in the short term. While 23Q3 had a relatively low base in the same period last year, the product side promoted high-end products, such as oil painting, koi, Face, Lotion and health boutiques; professional e-commerce operation team was set up on the channel side, resources input into e-commerce platform was increased, and corresponding supply chain system and daily operation management were built and strengthened. At present, long-term strategic cooperation has been reached with mainstream well-known platforms in the market. At the same time, the company actively strengthens the layout of new retail, O2O, content marketing and other emerging businesses, vigorously develops live broadcasting, and increases the share of community group purchases. And the company sets up a professional business consumer service team to match the growing demand of the commercial consumer market. Under the joint efforts of products and channels, the revenue growth rate of 23Q3 has picked up rapidly. Looking forward to Q4, double Eleven online to promote the arrival of the peak season, superimposed last year's Q4 relatively low base, we expect the company Q4 will continue the beautiful growth performance.

Benefit from the decline in pulp prices & optimization of product structure, Q3 gross profit margin significantly improved compared with the previous month: 2023Q1-3 gross profit margin of 30.19%, year-on-year-2.3pct. 23Q3 single-quarter gross profit margin is 34.04%, year-on-year + 2.6pct, month-on-month + 4.8pct, company gross profit margin repair has been close to the 21Q3 level (21Q3 company single-quarter gross profit margin is 34.33%). With the rapid decline of 23Q2 pulp prices, the orderly digestion of high-priced pulp inventory, and the continuous optimization of product structure, the proportion of high-end product sales has further improved, Q3 company gross profit margin has significantly improved compared with the month-on-month ratio.

Expense rate-net interest rate: 2023Q1-3 company net interest rate is 2.41%, year-on-year-2.1pct. 23Q3 single-quarter net interest rate is 3.78%, year-on-year + 1.1pct, month-on-month + 4.0pct. In terms of period expense rate, the sales / management + R & D / financial expense rate of 2023Q1-3 company is 20.29% / 7.37% /-0.26% respectively, which is + 0.2 / + 0.3 /-0.3pct respectively compared with the same period last year, and the three expense rates of 23Q3 are 20.92% / 9.06% /-0.1% respectively, which are + 0.5 / + 0.6/-0.4pct respectively. Q4 is generally the peak marketing season, we expect the company to increase its marketing investment to increase its share, and the Q4 sales expense rate may be upward, but considering that the company's gross profit margin continues to pick up, we are optimistic that the company's net profit margin Q4 will pick up steadily.

Cash flow & operating efficiency: in the first three quarters of 2023, the company realized net operating cash flow of 792 million yuan, + 68.56% year-on-year, and cash-to-cash ratio of 99.65%, year-on-year-5.0pct. In terms of operational efficiency, 23Q1-3 has accounts receivable turnover days from-3.86 days to 40.82 days, accounts payable turnover days from-5.79 days to 52.95 days, and inventory turnover days from-4.82 days to 99.97 days.

Profit forecast and valuation

The company is the leader of domestic paper in China, the internal management has been straightened out, the brand and product end have been continuously optimized and upgraded, and the profit elasticity is expected to be released with the medium-term pulp price decline, price increase and channel optimization, and continue to be optimistic about the long-term value of the company.

Taking into account the impact of equity incentive costs, exchange gains and losses and the digestion rhythm of high-priced pulp inventory on the company's full-year earnings, we estimate that the company will achieve operating income of 97.99, 110.27 and 12.185 billion yuan from 2023 to 2025, year-on-year + 14.34%, + 12.53%, + 10.50% The net profit of homing is 3.60,5.26 and 721 million yuan, which is + 2.85%, + 46.00% and + 37.17% respectively compared with the same period last year, corresponding to the PE of 40X, 27X and 20X respectively, maintaining the "buy" rating.

Risk hint

Raw materials uplink, price increases fall short of expectations, industry pattern deteriorates, channel development is not as expected.