23Q3 revenue decreased by 24.8%, net profit of net income decreased by 92.4%

23Q1-3 revenue was 6.62 billion dollars, up 3.1%; 23Q1, Q2, and Q3 revenue and year-on-year growth rates were 2.52 billion (+51.1% yoy), 2.17 billion (-1.1% yoy), 1.92 billion (-24.8%); 23Q1-3 was 120 million, down 75.5%. The main reason (1) was affected by fluctuations in raw material prices and paper product market conditions, the company's paper product sales volume and sales price were lower than the same period, but costs were higher than the same period, and paper product margin declined over the same period; (2) same period in '22, mother, mother The company's disposal of assets confirmed relevant income, and 23Q1-3 had no such disposal income; (3) Affected by domestic ecological industry market conditions, the subsidiary Chengtong Kaisheng's net profit declined compared to the same period.

The gross and year-on-year growth rates of 23Q1, Q2, and Q3 were $87 million (-29.6% yoy), $15 million (-91.2% yoy), and $13 million (-92.4% yoy), respectively;

23Q1-3 deducted $65 million, down 85%. The 23Q1, Q2, and Q3 deductions and year-on-year growth rates were $63 million (-44.4% yoy), -0.08 billion, and 0.1 billion (-93.7% yoy), respectively.

23Q1-3 8.8% gross profit margin reduced by 8.1pct, net profit margin 1.8% minus 5.6pct23q1-3 sales expense ratio 1.27%, same decrease 0.03pct; management expense ratio (including R&D expenses rate) 5.88%, same decrease 0.36pct; financial expense ratio 1.8%, same decrease 0.25pct.

Implement the new development concept and plan the growth of kinetic energy

(1) Seek large-scale growth in strategic ecology. Promote the ecology of the supply chain, accelerate the construction of the 450,000 ton forest paper project in Yueyang, stabilize the basic pulp and paper market, focus on revitalizing forestry assets, and build a platform for carbon sinks, trade, logistics, and engineering maintenance. (2) Seek differentiated brand growth. Ecological pulp and paper consolidates and enhances the advantages of self-produced pulp; ecological engineering strengthens industrial collaboration and enhances competitiveness; ecological agriculture and forestry enhances the brand influence of carbon sink platforms and actively explores breakthroughs in forestry transformation; and ecological chemistry accelerates the customer layout of electronic grade hydrogen peroxide sales. (3) Seek flexible efficiency growth. We are committed to shifting to providing “product+service” and building the ability to quickly adapt and meet market competition. (4) Seek value growth in greening manufacturing.

Actively seek guidance funds for national green support and development of technological reform projects.

The relaunch of CCER brings new opportunities. The main operators of the forestry and ecological carbon sink development business of a number of cooperative companies launched with the Beijing Green Exchange are subsidiaries Maoyuan Forestry and Senhai Carbon Sink. According to forecasts from industry experts, it is estimated that during China's carbon peak phase, total carbon emissions will reach about 10.4 billion tons. According to section 29 of the “Administrative Measures on Carbon Emissions Trading (Trial)”, key emission units can use state-certified voluntary emission reduction amounts to offset the payment of carbon emission quotas every year, and the offsetting ratio should not exceed 5% of the carbon emission quotas to be settled. As one of the main types clearly included in CCER, forestry carbon sinks have brought huge development opportunities to ecological assets after the CCER market has reopened. 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 carbon sink projects for national forestry assets. The company expects to sign a total of 50 million mu of forestry carbon sink contracts by the end of 2025.

The company signed a strategic cooperation agreement with the Beijing Green Exchange in February 2023, which aims to carry out extensive cooperation in the following areas: (1) Jointly build a carbon asset management service platform and carry out low-carbon management, carbon emission management, carbon quota management transactions, and CCER management transactions. (2) Focus on the comprehensive utilization of resources in the papermaking and agriculture and forestry industries, and actively explore effective ways to achieve the “double carbon” goal in line with the latest policies of the country, provinces, cities, and regions to achieve carbon peaks and carbon neutrality. (3) Cooperation on “double carbon” topics to help revitalize rural areas. (4) Green quantitative evaluation and incentive mechanism construction to promote the healthy development of enterprises. (5) Relying on the company's rich carbon assets and services such as standard setting and product development related to green credit on exchanges, the two sides share green project resources and jointly create innovative green finance projects. (6) Promotion and brand promotion, joint publication of relevant research results, and brand promotion in various forms such as seminars or press conferences to enhance corporate social image and capital market influence. (7) Based on the company's existing carbon sink resource reserves and social resources developed, the variety of transactions has been continuously expanded, and a trading volume of not less than 1 million tons/year has been carried out with the assistance of the Beijing Green Stock Exchange. (8) Training of professional and technical personnel in the fields of carbon credit development and trading, carbon finance, etc.

Adjust profit forecasts and give a “buy” rating

The company is engaged in R&D, production and sales, including cultural paper, packaging paper, industrial paper, etc.

In recent years, the company has expanded its industrial chain based on the forest pulp and paper industry, entered the ecological industry, engaged in forestry survey and design, ecological carbon sink development, landscape design, garden engineering construction and maintenance, and ecological management, forming a dual-core development industrial pattern with “pulppaper+ecology” as the main business, with nearly 2 million mu of forestry base and three major industrial bases in Yueyang, Huaihua and Ningbo. Considering that the company's performance (23Q3 revenue decreased by 24.8%, net profit decreased by 92.4%) was affected by the decline in paper product sales, sales prices, and gross profit compared to the same period, we adjusted our profit forecast. The net profit of 23-25 companies is estimated to be 2.06/503/704 million yuan (previous value is 707/840/987 million yuan), EPS is 0.11/0.28/0.39 yuan/share, and PE is 58/24/17x, respectively.

Risk warning: risk of increased competition in the industry; risk of imbalance between supply and demand due to industry capacity expansion and macroeconomic fluctuations; price fluctuation risk; credit risk; liquidity risk, etc.