The company released a performance forecast for the first half of fiscal year 2024: FY2024H1 achieved net profit of 200-40 million yuan, with a median value of 300 million yuan (FY2023H1/H2 losses of -13.9/990 million yuan, respectively), with a significant month-on-month improvement in profit.
Demand recovered during the peak season, raw material dividends were released, and profits recovered month-on-month. In terms of price, demand was weak in the first half of 2023 and profits were under pressure. Demand recovered during the peak season since September. The company issued multiple rounds of price increases and price increases were gradually implemented. The market price of 2023H2 boxboard/corrugated paper was 3795/2,844 yuan/ton, respectively, -7.5%/-4.8% month-on-month, while the proportion of the company's middle- and high-end products is expected to increase; in terms of cost, the company's raw material layout has reached the harvest period. We expect the company's raw material layout to reach the end of 2023 (excluding domestic waste). The supply rate continues to rise, and energy prices have remained relatively low since the second half of 2023. According to our estimates, the average net profit per ton of FY2024H1 is about 33-35 yuan (assuming FY2024H1 sales volume is 85-9 million tons; FY2023H2 net profit per ton after excluding exchange gains and losses is -156 yuan).
The pace of capacity expansion is slowing down, and capital expenditure is expected to fall from a high point. By the end of 2023, the company's pulp and paper production capacity exceeded 24 million tons, of which the papermaking/raw material production capacity was 2002/4.62 million tons. The company postponed part of its production expansion plan due to weak industry demand in 2023. We expect the company's capital expenditure and debt to gradually decline from high points, pressure on depreciation and interest expenses will slow down, and bottom profit is expected to consolidate and improve.
Profit forecast and investment rating: Improved demand during the FY2024H1 peak season led to marginal price restoration, combined with reduced raw material and energy costs, and improved profit month-on-month. The company's category structure continues to be rich, and the raw material base layout is expected to consolidate bottom profits. However, the pace of industry recovery is relatively slow, and the company's business recovery is slow. We lowered our early profit forecast. We estimated that FY2024-2026's net profit to mother will be 900 million yuan/2.5 billion yuan/4 billion yuan respectively, corresponding PE is 13X/5X/3X, maintaining a “buy” rating.
Risk warning: Downstream demand recovery falls short of expectations, industry competition intensifies, and production capacity investment falls short of expectations.