Incident: On March 12, Mountain Eagle International announced that it intends to sell all or part of its 48.16% shares in its subsidiary Nordic Paper HoldingAB (publ) (abbreviation: Nordic Paper; stock code: NPAPER.ST). Based on the closing price of the working day before the announcement, the market value of Nordic Paper reached 2.92 billion Swiss francs, which is approximately RMB 2,036 billion based on the spot exchange rate of the day. If all of the above shares are sold, the company is expected to return approximately RMB 980 million.

Optimize the allocation of resources to ease the pressure on the company's cash flow. According to the announcement, the “Mountain Eagle Convertible Bonds” and “Eagle 19 Convertible Bonds” issued by the company will expire in November 2024 and December 2025, respectively. As of March 12, 2024, the unconverted amount of these convertible bonds reached 22.46/1,844 billion yuan, respectively. We judge that the sale of shares in Nordic Paper will promote the optimal allocation of the company's resources and facilitate the development of the company's core industrial chain. At the same time, it is expected that the pressure on the company's cash flow will gradually ease in 24 years.

Supply and demand in the industry have eased, and profit improvements can be expected. According to Zhuochuang information, the market price of boxboard/corrugated paper was -11.54%/-10.82%, respectively, and +0.10%/-0.16% month-on-month, respectively. Due to excessive production capacity in the early stages and slight pressure on short-term industry supply and demand, the prices of box board, corrugated paper, and domestic waste were all at historically low levels. With the release of new production capacity for all leading waste paper companies in 24 years, it is expected that box board corrugated paper will usher in an improvement in the supply and demand structure, and corporate profits are expected to gradually recover.

Production capacity investment is slowing down, and the advantages of the industrial chain are boosting profit realization. The first phase of the 300,000-ton corrugated paper project in Jilin Shanying was put into operation in January 2024, and the company's planned production capacity will exceed 8 million tons in 24. We expect the company's subsequent capital expenditure to gradually slow down, and the entire upstream alternative fiber and downstream packaging industry chain layout is expected to become the core driver of the company's bottom level profit growth.

Profit forecast: We expect the company's net profit to be 1.9/1.55 billion yuan in 2024-2025, respectively, with a corresponding PE of 7.53X/5.31X, maintaining a “buy” rating.

Risk warning: Downstream demand recovery falls short of expectations, packaging customer expansion falls short of expectations, and industry competition intensifies.