Event: Sun Paper released its 2023 annual report. In 2023, the company achieved operating income of 39.544 billion yuan, a year-on-year decrease of 0.56%; net profit to mother was 3,086 billion yuan, up 9.86% year on year; net profit after deduction was 3,027 billion yuan, up 9.22% year on year. Among them, in the 2023Q4 quarter, the company achieved operating income of 10.342 billion yuan, an increase of 2.13% year on year; net profit to mother of 949 million yuan, up 75.51% year on year; net profit after deducting net income of 941 million yuan, an increase of 75.56% year on year.
Production capacity continues to be released, and cultural paper revenue has continued to grow for 23 years
In 2023, the company continued to release new production capacity, and paper and pulp sales reached 666 and 1.46 million tons respectively, up 19.57% and -20.65% year-on-year respectively. The driving effect of the company's Guangxi Beihai Park and Nanning Park was highlighted. The Beihai Park's paper and pulp project achieved full production and stable production; the PM1 specialty cultural paper project, PM1/PM2 high-grade wrapping paper project and supporting natural color chemical pulp project in the Nanning Park were successfully put into operation and completed, and the household paper and post-processing project (Phase I) with an annual output of 300,000 tons was successfully launched. In terms of paper products, in 2023, the company achieved revenue of double adhesive paper/coated paper/ box paper/ coated base paper/ household paper respectively
133.10/35.06/98.07/12.049 billion yuan, up 22.58%/10.39%/-5.65%/-24.63%/33.75%, respectively; in terms of pulp, the company achieved revenue of 36.67/18.39/1,753 billion yuan in 2023, respectively, with year-on-year growth of -12.08%/-7.78%/-47.84%.
The popularity of dissolved pulp improved in 24Q1, and the inflection point for cultural paper rose after the Spring Festival 1) Cultural paper: According to Baichuan Yingfu data, the average price of 24Q1 double adhesive paper/coated paper was 5739/5816 yuan/ton, respectively, up -12.16%/0.52% year on year, respectively, and -13.30%/0.11% month-on-month, respectively. Although a lot of new production capacity was added in Q1, demand picked up during the peak season after the Spring Festival, and party and government paper orders provided some rigid support. Leading companies firmly sent letters to push up, compounded by stronger pulp prices. The cumulative increase of various leaders in Q1 was about 300 yuan/ton. Looking ahead to Q2, the supply of cultural paper continues to ease, but publishing orders and demand for party and government paper have bottomed out. As of mid-April, pulp prices continued to strengthen. The overall price of cultural paper is expected to remain flat month-on-month compared to Q1, and fall slightly with the end of the peak season.
2) Box board paper: The average price in 24Q1 was 4,053 yuan/ton, down 9.16% year on year and 15.20% month on month. Demand recovery is limited, and the conflict between supply and demand still exists, but the impact of maintaining a stable import volume is manageable. Along with the rebound in the price of waste paper, prices are expected to stop falling. 3) Dissolved slurry: The average price was 7,454 yuan/ton, up 2.03% year on year and down 0.54% month on month. Supported by stronger pulp prices, it is expected that the price of dissolved slurry will continue to strengthen in Q2.
Continue to deepen the integration of forest pulp and paper, and expand the entire industry chain
By the end of 2023, the planting area of the pulp forest at the Laotian base had reached 60,000 hectares. In the next few years, the company plans to steadily advance with an additional planting scale of 1-12,000 hectares per year, and will gradually increase planting efforts. Currently, the area planted by self-managed forests and people's cooperative forests at the Laos base is about 50% each. The company expects that along with the planting effect of local residents, their enthusiasm will gradually increase, and the planting area of people's cooperative forests will also increase accordingly. The company's “three major bases” have achieved high-quality collaborative development, made up for shortcomings in strategic location layout, perfected the scientific layout on the market side, and steadily built Sun Paper's “integrated forest pulp and paper” industry chain, making the company have strong core competitiveness in the industrial chain and is more capable of ironing out cyclical fluctuations in the industry. In April '24, the company announced that the Nanning Phase II project will build a 400,000 tons/year specialty paper production line, 350,000 tons/year bleached chemical wood pulp production line, 150,000 tons/year mechanical wood pulp production line and related supporting facilities, with a total investment of no more than 7 billion yuan.
Q4 Profitability continues to recover, and dividend ratio increases
In terms of profitability, the company's gross margin in 2023 was 15.89%, up 0.72 pct year on year. Among them, 23Q4 gross margin was 17.12%, up 3.9 pct year on year, and 0.4 pct month on month.
According to wind data, the average price of 24Q1 broadleaf pulp/coniferous pulp was 667/754 US dollars/ton, respectively, down 18.60%/17.12% year on year, and 5.40%/-20.56% month on month, respectively. The company's gross margin Q4 continues the repair trend. As Q1 price increases and pulp prices rise, the comparative advantage of forest pulp and paper integration becomes prominent. The Q1 profit level is expected to remain stable month-on-month. In terms of period expenses, the company's expenses rate for the 2023 period was 7.08%, up 0.04pct year on year; sales/management/R&D/finance expenses were 0.39%/2.42%/2.35%/1.92%, respectively, up 0.01/-0.18/0.39/-0.17pct year-on-year, respectively. Under the combined influence, the company's net interest rate in 2023 was 7.84%, up 0.76pct year on year; among them, 23Q4's net interest rate was 9.22%, up 3.83 pct year on year.
In addition, the company plans to pay shareholders a cash dividend of 3 yuan (tax included) for every 10 shares, and at the same time formulates a dividend return plan for the next three years to pay dividends according to the stage of development and major capital expenditure arrangements.
Investment advice: Sun Paper is the leading high-quality white horse in the paper industry. The company's pulp and paper production capacity is expanding steadily, and continuous growth can be expected in the medium to long term. We expect Sun Paper's revenue in 2024-2026 to be 435.37, 458.54, and 48.546 billion yuan, up 10.10%, 5.87% year on year; net profit to mother will be 36.55, 41.97, 4.907 billion yuan, up 18.46%, 14.81%, and 16.92% year over year, corresponding PE is 12.0x, 10.3x, 9.3x, giving 2024 15.7xPE, target price 20.54 yuan, maintaining a buy-A investment rating.
Risk warning: Risk of downstream demand falling short of expectations, risk of large fluctuations in raw material prices, risk of repeated epidemics, risk of capacity construction falling short of expectations, risk of acquisition results falling short of expectations.