Incident: The company announced its 2023 annual report. In 2023, the company achieved revenue of 6.519 billion yuan, an increase of 9.35% over the previous year, and achieved net profit of 273 million yuan to mother, an increase of 32.97% over the previous year. In the fourth quarter, the company achieved revenue of 1,855 billion yuan, a year-on-year increase of 31.41%, and achieved net profit of 166 million yuan during the same period, an increase of 983.15% over the same period.
The rise in paper prices in the fourth quarter led to a month-on-month increase in revenue and profit. The company's revenue increased slightly month-on-month in the fourth quarter. In terms of split volume and price, the company achieved sales of 307,000 tons of machine-made paper in the fourth quarter, down about 5% from month to month. The average sales price of tons of paper rose by about 540 yuan/ton, an increase of 10% month-on-month. It is estimated that the increase in the price of food wrapping paper and cultural paper was the main driving factor for the rise in paper prices. According to Zhuochuang's statistics, the factory price of raw paper for paper cups and the average price of the double adhesive paper market rose 11% and 10%, respectively, in the fourth quarter. On the profit side, the company's net profit to mother increased 39% month-on-month in the fourth quarter. It is estimated that it was mainly due to an increase in paper prices, while the cost side benefited from low-price pulp inventory, and the month-on-month increase was small.
We expect the company's net profit per ton of paper in the fourth quarter to be about 460 yuan/ton, an increase of 54% over the previous quarter.
Profitability improved markedly in the fourth quarter compared to the previous quarter. The company's gross margin for the fourth quarter was 15.1%, up 4 pct from month to month. It is estimated that the company is still consuming the low price pulp inventory purchased earlier. The increase in cost was small compared to the month. At the same time, paper prices rose sharply against the backdrop of a recovery in demand and a rebound in pulp prices. The company's expense ratio increased by about 1 pct over the same period. In the fourth quarter, the company achieved a net interest rate of 8.9%, an increase of about 2 pcts over the previous quarter. The net interest rate for the single quarter hit a new high since 2021/Q3, and profitability improved markedly.
The integrated layout of pulp and paper is progressing in an orderly manner, and the product structure is becoming more and more perfect. The company's 300,000 ton chemical pulp production line was officially launched at the end of February 2024. The first phase of the industrial wrapping paper project at the Hubei Hanchuan base is expected to be put into operation in June 2024, the 250,000 ton cultural paper/glassine paper production line is expected to complete construction in 2025, the 600,000 ton chemical paste production line at the Jiangxi base has also entered the second EIA, and the company's integrated pulp and paper layout is progressing in an orderly manner. Furthermore, the company acquired Kaifeng Special Paper in 2023, increasing the production capacity of industrial liner by 3.5 tons to further complement its product structure.
Based on the assumption of an appropriate reduction in gross margin due to recent pulp price trends and the assumption of an appropriate increase in sales volume according to the company's latest production capacity plan, we forecast the company's net profit to the mother for 2024-2026 to be 5.56/755 million yuan (previously predicted net profit to be 561/755 million yuan for 2024-2025, respectively), and the corresponding EPS was 1.38/1.87/2.22 yuan, respectively.
According to comparable companies, we gave the company a price-earnings ratio estimate of 12 times in 2024, corresponding to a target price of 16.56 yuan, maintaining the “gain” rating.
Risk warning
The risk of large fluctuations in raw material prices; the risk of increased market competition; the risk of demand falling short of expectations; the risk of production capacity progress falling short of expectations; the risk of large fluctuations in investment returns and asset impairment returns.