Key points of investment
Yongxin Co., Ltd. released its 2023 annual report
23A achieved revenue of $3.379 million (+2% year over year, same below), net profit attributable to mother of 408 million (+12%), and net profit of non-return to mother of 385 million (+20%). Among them, 23Q4 revenue was 900 million (-2%), net profit attributable to mother was 115 million (+2%), and net profit after deduction of non-return to mother was 104 million (+23%).
The difference in non-current profit and loss mainly comes from the disposal of non-current assets (revenue of $12 million in '22, loss of $14 million in '23). After deducting non-recurrent profit and loss, profitability increased significantly.
At the same time, the company announced that a cash dividend of 5.50 yuan (tax included) will be distributed to all shareholders for every 10 shares, and a total cash dividend of 337 million yuan, with a dividend ratio of nearly 83%.
Revenue side: Film 23H2 growth accelerated, international business rapidly expanding 1) The main color printing industry's revenue in '23 was flat year-on-year, sales volume was +4.15% year over year. The downstream connected high-quality customers in the food, daily chemicals, and pharmaceutical fields had a long time of cooperation and steady growth in orders; the film business grew at 525 million (+14.5%, of which 23H2 +30%) grew faster, driven by the release of production capacity of the new BOPE film project with an annual output of 33,000 tons.
2) In '23, the international market revenue was 380 million (+8%), domestic revenue +1%, and the profitability of the international business was strong (gross margin 29% international vs. 23% domestic). It entered the Southeast Asian market through multinational companies and developed smoothly.
Profit side: driven by falling raw material prices+product structure optimization
Gross margin increased 2.46pct year over year in '23, of which 23Q4 was +1.21pct year over year, mainly due to:
1) The company's main raw materials are crude oil derivatives. The average price in 2023 was 82.17 US dollars/barrel (down 17% year on year 22), of which the average price in 23Q4 was 82.85 US dollars/barrel in a single quarter (down 6.5% year on year). As of February 27, 2024, the average price was 80.24 US dollars/barrel (-4.2% YoY), and oil prices continued to decline year over year. The purchase price of the company's raw materials declined during the corresponding period, and the average price of synthetic resins (66% of the total purchase amount) 23H1/H2 was -19%/-16%, respectively.
2) During the period, the company actively carried out product innovation, cost reduction and efficiency, and product structure optimization.
Financial indicators: The 23Q4 fee control effect was obvious, and the cash flow growth was excellent (1) The cost ratio decreased by 1.48 pct year on year during the 23Q4 period, of which the sales expense ratio was -0.46 pct year on year, the management+R&D expense ratio was -0.85 pct year on year, and the financial expense ratio was -0.17 pct year over year.
(2) Net operating cash flow of 23Q4 in a single quarter was 232 million (-121 million in the 22Q4 quarter), accounts receivable at the end of the 23Q4 period were 583 million (down 6% from 23Q3), and inventory was 303 million (down 15% from 23Q3).
Profit forecasting and valuation
The soft plastic packaging industry continues to clear and Yongxin's share to rise. At the same time, the product structure is optimized and profitability is enhanced. It is a high-quality target for high dividends and steady growth, and continues to be recommended. We expect that in 2024-2026, the company will achieve operating income of 3.775 billion/4.182 billion/ 4.626 billion yuan, an increase of 11.71%/10.79%/10.61%, and net profit to mother of 477 million/538/ 601 million yuan, an increase of 16.78%/12.80%/11.84% respectively, corresponding to the current PE11.57/10.26/9.17X rating, and maintain the “buy” rating.
Risk warning: Crude oil prices have risen sharply, and thin film development falls short of expectations