The company announced its 2023 annual report. The performance was basically in line with market expectations, strengthened the high dividend policy, and actively gave back to shareholders. In 2023, we achieved operating income of 3.379 billion yuan, a year-on-year increase of 2.3%, and realized net profit of 408 million yuan, an increase of 12.5% over the previous year, and realized net profit without deduction of 385 million yuan, an increase of 20.0% over the previous year. 23Q4 achieved operating income of 100 million yuan, a year-on-year decrease of 1.7%, realized net profit of 115 million yuan, an increase of 2.0% over the previous year, and realized net profit without deduction of 104 million yuan, an increase of 23.1% over the previous year. The early Spring Festival in '23 led to a high revenue base in 22Q4, and sales remained basically flat in 23Q4. Cash dividends for 23 years will be paid a cash dividend of 5.50 yuan (tax included) for every 10 shares, with a total cash dividend of 337 million yuan, a dividend rate of 83%, and a dividend rate of 6.6%!

Revenue side: The film business achieved high growth, and the overseas business grew steadily. 1) The film business has achieved high growth, and a single material can be recycled and used gradually to be released. In 2023, the film business achieved revenue of 525 million yuan, up 14.5% year on year, and sales volume increased 44.9% year on year, mainly due to the release of production capacity for the new functional film material project with an annual output of 8,000 tons and the new BOPE film project with an annual output of 33,000 tons. It is expected that BOPE will continue to drive film revenue growth after the second line of production is put into operation. With the new functional film material expansion project with an annual output of 22,000 tons, the technical improvement project for a new composite sheet production line with an annual output of 8,000 tons is expected to further drive the growth of film revenue. 2) Overseas business is growing steadily and continues to enter the supply chain of overseas multinational companies. Overseas business reached 380 million yuan in 2023, up 7.8% year on year. 23H2 achieved revenue of 170 million yuan, -4.0% year over year. Supply was blocked mainly due to geopolitical reasons. The company actively laid out overseas warehouses, promoted the localization of suppliers, and actively entered the overseas market supply chain of multinational companies. Overseas business is still expected to grow rapidly. The overseas market competition pattern is better, and the company enjoyed a higher gross profit margin. The gross profit margin in the overseas market was 29.1% in 2023, 6.0 pct higher than the domestic market, which led to an increase in profitability.

On the profit side, actively promote cost reduction and efficiency, and raise the level of profit margins. The company gives full play to the supporting advantages of the industrial chain, uses group management to reduce costs and increase efficiency through scale effects; at the same time, it promotes MES systems and refined production process control. In 2023, the company achieved a gross profit margin of 24.7%, an increase of 2.5 pct over the previous year, mainly due to a decrease in raw material costs. The average price of crude oil in 2023 was 82.9 US dollars/barrel, down 17% from 2022. By business, the gross profit margin of the color printing business was 27.4%, +3.7 pct year on year; the gross profit margin of the aluminizing business was 0.4%, -3.7 pct year on year, 7.9% of the film business, -0.1 pct year on year, and the gross profit margin of the ink business was 22.5%, +2.4 pct year over year. In 2023, the company achieved sales expense ratio, management expense ratio, and R&D expense ratio of 1.7%/3.8%/4.3%, which were flat year-on-year/-0.2pct/+0.2pct, respectively. Stable gross margin and effective cost control boosted the company's net interest rate level, achieving a net profit margin of 12.1% to mother, an increase of 1.1 pct over the previous year.

Environmental protection policies promote increased industry concentration and the development of single-material recyclable materials that are easy to recycle. The company actively invests in research and development to expand new markets and new businesses. Food safety and environmental protection policies have become stricter, small and medium-sized production capacity has been cleared, and the concentration of leaders is expected to continue to increase. The company actively invests in R&D, with a R&D cost rate of 4.3% in 2023, +0.2pct compared with major customers, focusing on single-material packaging materials that are easy to recycle and recyclable. Currently, the main demand is mainly the updating and iteration of film materials from overseas multinational companies, while also promoting the expansion of film business application scenarios, such as toothpaste tubes, electronic products, cheese films, etc.

The company is a leader in plastic soft bags and has been operating steadily for a long time. The downstream is a leader in mass consumer goods, reflecting countercyclical characteristics. Benefiting from food safety, environmental protection policies and product upgrading trends, industry concentration continues to increase. In the short term, the company has benefited from a recovery in downstream consumption. In the medium to long term, production capacity expansion continues to bring revenue contributions, the film business and overseas market expansion have opened up room for growth, and product structure upgrades have boosted the center of profit margins. The company strengthened its high dividend policy, with a dividend rate of 83% in 2023, providing stable returns.

Considering that it will take time for downstream demand to recover, the company's net profit forecast for 2024-2025 was slightly lowered to 476/545 million yuan (the original forecast value was 505/580 million yuan), and the 2026 forecast value was added to 625 million yuan. Net profit to the mother for 2024-2026 was +16.6%/+14.6%, respectively. The corresponding PE was 12/11/9X, maintaining the purchase rating.

Risk warning: Downstream consumer demand is weak and oil prices fluctuate.