Key points of investment
The company's FY2024H1 (corresponding to the 2023H2 natural year) achieved revenue of 30.61 billion yuan (-1.9% YoY), net profit to mother of 290 million yuan (+121.1% YoY), an increase of 1,287 billion yuan over FY23H2, and an increase of 1,681 billion yuan over FY23H1. FY24H1 profit recovered both month-on-month and year-over-year.
Production and sales grew brilliantly, with earnings picking up in 23H2. Profits are expected to recover in 2023H2 to achieve sales volume of 10 million tons (+16.3% year over year). We estimate gross profit per ton of 271 yuan/ton (+165/ton, year on year +191 yuan/ton), net profit per ton of 29 yuan/ton (154 yuan/ton month-on-month, +191 yuan/ton year-on-year). The company's production and sales reached a record high during the period, optimizing the raw material structure to reduce costs and greatly improve profitability. By product, wrapping paper achieved revenue of 28.1 billion yuan (+1.4% YoY), accounting for 92%, and sales volume of 9.6 million tons (YoY +19%), of which Kraft paper/corrugated/gray white board paper revenue was 170/67/4.4 billion yuan respectively, +19%/-15% year-on-year, and sales volume of kraft paper/corrugated paper/gray whiteboard were 570/250/1.4 million tons, respectively; cultural paper achieved revenue of 2.1 billion yuan (YoY), -25% (YoY) accounting for 7%, with sales volume of 400,000 tons (YoY) (Flat); specialty paper achieved revenue of 320 million yuan (-6% year over year), and revenue from sales of wood pulp of 024 million yuan (-92% year over year).
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 23Q3.
From August to October '23, paper mills and packaging factories had low inventory and strong demand for double section orders. Prices and profits for corrugated boxes picked up, and prices in November-December showed a slight correction as demand weakened. In January-January '24, the industry shut down and maintenance reduced the scale of supply, and paper mills raised prices, and there was some support for prices and tons of profit. We expect prices and profits to recover year-on-year in 24 as the import shock stabilizes and domestic demand recovers in '24.
The expansion of the company's paper production capacity is slowing down, and the raw fiber plan is rich
In 2023, the company's paper production capacity was 21.12 million tons (year-on-year +2.35 million tons) and pulp production capacity was 4.72 million tons (+2.17 million tons year-on-year). The capital expenditure of FY24H1 is 6.6 billion yuan (year-on-year - 4.2 billion yuan), and the estimated capital expenditure for FY24H2 is 6.4 billion yuan. Some of the new papermaking production capacity has been postponed or cancelled. In the future, it is expected that 1.7 million tons of wood pulp will be built in the Beihai Sea and 420,000 tons of wood fiber production capacity in Malaysia, which is expected to support the increase in profits of high-end products.
Profit forecasting and valuation
In the 24/25/26 fiscal year, the company is expected to achieve revenue of 645/792/83 billion yuan, +14%/+23%/+5% year-on-year, and net profit of 7.82/18.95/3.124 billion yuan, respectively, and +133%/+142%/+65% year-on-year, corresponding to PE 19/8/5X, respectively, maintaining a “buy” rating.
Risk warning
The industry is concentrated in production, demand recovery falls short of expectations, import and export policy changes