The company issued a pre-profit announcement for the 2023 annual results

The 23Q4 company achieved net profit of 210 to 260 million yuan, an increase of 109% to 111%, and an increase of 37% to 67%; net profit without return to mother of 0.09 to 109 million, an increase of 100% to 105%, and -89% to +40%; achieved net profit to mother of 95 million to 143 million in '23, turning a loss into a profit; net profit after deducting net profit of 3.5 to 250 million yuan, narrowing losses.

Papermaking: Demand recovered, production and sales increased, production capacity reached 8 million tons. According to Steel Union data, the market price of 23Q4 boxboard/corrugated paper was 4093/2882 yuan/ton, respectively, -13%/-15%, and +0.1%/+3.8% month-on-month. The peak season industry demand was steadily restored, and the company's production and sales grew at the same time, combined with the management policy of lean management, cost reduction and efficiency, and optimized inventory. We expect a month-on-month recovery of paper profits.

In terms of production capacity, as of the end of 23H1, the company had built five major papermaking bases in Maanshan, Zhejiang, Zhangzhou, Fujian, Jingzhou, Hubei, and Zhaoqing, Guangdong, with a production capacity of about 7.5 million tons. The company's 770,000 ton papermaking project in Zhejiang was put into operation in '23. At the beginning of '24, the company produced 300,000 tons of paper in Jilin. The company's paper production capacity has increased to about 8 million tons, and its leading position is stable.

Packaging: optimization of customer structure and improvement of profitability

The company actively extends upstream and downstream of the industrial chain, leverages the collaborative advantages of the Group's paper and packaging industry chain, transforms from selling products to serving valuable customers, and continuously increases its market share. On the one hand, we increase the share of core customers such as Dell, HP, and Midea through service capabilities, and on the other hand, we actively expand high-quality major customers such as Unilever, Pepsi, and Haitian. In 23 years, the company's high-value customers increased their share of revenue, and customer structure optimization led to an increase in profitability.

The company's packaging sector enterprises are located in economically developed coastal regions along the river. The industry covers Jiangsu, Zhejiang, Anhui, Fujian, Guangdong, Hubei, Shandong, Sichuan, Tianjin, Guizhou and other provinces and cities. As of 23H1, production exceeded 2.1 billion square meters, ranking second in China.

Adjust profit forecasts and maintain a “buy” rating.

The company's main papermaking business is recovering weakly, and the industrial chain is expanding to cultivate cost advantages and value growth points. According to the company's performance forecast, we adjusted our profit forecast for 23 to 25. We expect the company's net profit to be 1.2/11.2/1.42 billion yuan (previous value was 2.0/11.2/1.42 billion yuan), and PE is 64/7/5X, respectively.

Risk warning: The recovery in demand falls short of expectations, the impact of imported paper, increased competition in the industry, the risk of fluctuating raw material prices, the risk of overseas investment, the risk that internal governance regulations need to be strengthened, etc. The performance forecast is only preliminary. The specific financial data is based on the 2023 annual report officially released by the company.