Key points of investment

The company announced its 2023 performance forecast. It is expected to achieve net profit of 0.95 to 143 million yuan, with a median loss of 119 million yuan, a year-on-year profit of -3.5 to -250 million yuan, with a median value of 300 million yuan; net profit attributable to mother of 210 million yuan to 260 million yuan in a single 23Q4, with a median value of 240 million yuan, net profit after deducting non-return mother of 0.1 to 110 million yuan. The median value is 59 million yuan. The Q4 results will pick up month-on-month.

Demand for terminals picked up in '23, and the economy is expected to recover moderately in '24

(1) Papermaking: Production and sales in the company's papermaking sector increased in 23 years, while reducing costs and increasing efficiency and optimizing inventory. The overall gross margin of the product increased compared to the previous year. According to Zhuochuang, the average price in the 23Q4 boxboard/corrugated paper market was 3843/2927 yuan/ton, up 95 yuan and 163 yuan from the previous month. In August-October, demand for low inventory & double-section orders from paper mills and packaging factories picked up, order demand declined in November-December, customers just needed to prepare goods, prices and tonnage profits fell, 24Q1 Spring Festival maintenance supply decreased, and prices and tonnage profits are expected to be supported to some extent. It is expected that the 2024 boom will recover moderately with demand.

(2) Packaging: In 23 years, the company's major packaging customer development process continued to deepen, the revenue share of valuable customers continued to increase, the product structure was optimized, the packaging industry chain had outstanding advantages in integrated service capabilities, and the profitability was relatively steady.

The impact of imported paper was absorbed at the beginning of 2023. According to the General Administration of Customs, domestic imports of boxboard/corrugated paper in 2023 were 5.32 million tons (+48% year over year)/3.59 million tons (+48% year over year). The import impact was concentrated in early 2023, mainly from Southeast Asia. Some major domestic manufacturers returned overseas wrapping paper production capacity to the country. Major domestic manufacturers responded by adopting strategies to reduce paper prices and upstream domestic waste. The zero import tariff policy in 2024 was maintained at a weak domestic demand In anticipation of stock replenishment, We expect the increase in imported paper to smooth out in 2024, and the profit and price center of wrapping paper may fluctuate as demand fluctuates.

Paper production capacity expanded in an orderly manner, and the layout of raw materials was gradually improved

Within 23 years, two production lines of the company's Zhejiang Shanying 770,000 ton paper project were put into operation. Jilin Shanying started 300,000 tons of corrugated paper in early 24, supporting the 100,000 ton straw pulp project. We expect the company's annual paper production capacity to be about 8 million tons in 2023. Furthermore, as raw fiber supporting projects are being implemented one after another, the raw material self-sufficiency rate is expected to gradually increase, and the fiber resource layout is expected to continue to improve the profitability of wrapping paper products.

Profit forecasting and valuation

The price and profit situation of box board corrugated paper fluctuated with demand, and there was a risk that industry demand would be insufficient. We lowered the company's profit forecast. It is estimated that the company will achieve revenue of 368/428/48.6 billion yuan in 23-25, +8%/+16%/+14%, respectively, and achieve net profit of 1.20/9.92/1,457 billion yuan, respectively, +105%/+726%/+47%. The corresponding PE is 58/7/5X, maintaining the “buy” rating.

Risk warning

Downstream sentiment fluctuates, raw material prices fluctuate, and paper prices fluctuate greatly