The company announced a smart factory project with an annual output of 40,000 tons of color printed composite flexible packaging materials to enhance long-term growth capacity. The company announced a new 40,000 ton color printing capacity project and designed 10 production lines, including 6 new purchases and 4 headquarters relocations. According to the announcement, the construction period of the project is 24 months and is expected to be completed by the end of 2026. After all construction is completed and delivered, after deducting the impact on the production capacity of the relocated equipment, the project is expected to increase revenue of 630 million yuan and annual profit of 100 million yuan. In terms of equipment, production equipment is imported from overseas, and is equipped with automated equipment such as delivery robots, flipping robots, automatic packaging machines, etc., and intelligent software such as MES (Manufacturing Execution System) and WMS (Warehouse Management System) to promote digital and information-based production capacity building and consolidate advantages in production quality, efficiency, and safety. On the customer side, the new production capacity mainly matches the new needs of traditional customers. The increase in high-quality production capacity can strengthen the share of downstream customers and enhance long-term growth capacity.
The company's operating capacity is steady, and its profitability is steadily improving. On the revenue side, the film business has achieved high growth, and single materials can be recycled and used to gradually release quantities. 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. It is expected that BOPE will continue to drive film revenue growth after the second line of production; the overseas business will grow steadily and continue to enter the supply chain of overseas multinational companies. Overseas business reached 380 million yuan in 2023, up 7.8% year over year. On the profit side, actively promote cost reduction and efficiency, and raise the level of profit margins. In 2023, the company achieved a gross profit margin of 24.7%, a year-on-year increase of 2.5 pct, and sales expenses ratio, management expenses ratio, and R&D expenses ratio of 1.7%/3.8%/4.3%, which remained flat /-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 concentration is expected to continue to increase.
The company actively invests in research and development, and is jointly engaged in new product research and development with major customers, focusing on single-material, easy-to-recycleable and recyclable packaging materials. Currently, the main demand is mainly the renewal 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 plastic soft packaging company with long-term steady operation. The downstream is a mass consumer goods brand, reflecting countercyclical attributes. 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.
Maintaining the 2024-2026 net profit forecast of 476/5.45/625 million yuan, the net profit to mother for 2024-2026 was +16.6%/+14.6% year-on-year, respectively. The corresponding PE was 13/12/10X, maintaining the purchase rating.
Risk warning: Downstream consumer demand is weak and oil prices fluctuate.