Incident: The company announced its 2023 annual report. In 2023, the company achieved revenue of 39.544 billion yuan, a year-on-year decrease of 0.56%, and achieved net profit of 3.086 billion yuan to mother, an increase of 9.86% over the previous year. In the fourth quarter of a single quarter, the company achieved operating income of 10.342 billion yuan, up 2.13% and 4.88% year-on-year respectively; realized net profit to mother of 949 million yuan, up 75.51% and 7.21% year-on-month respectively.
The fourth quarter performance was impressive, and profit levels continued to improve. The company's net profit after the audit in 2023 was 3,086 billion yuan, slightly higher than the data disclosed in the previous earnings report. Looking at the whole year, in the first, second, third and fourth quarters, the company achieved net profit of 5.7/6.9/89/ 950 million yuan respectively, and the performance showed an upward trend from quarter to quarter. Among them, the cost of pulp and wood chips remained high in the first quarter, and the performance of paper prices was weak, leading to profit pressure; in the second quarter, paper prices fell due to the rapid decline in pulp prices, but the company benefited from falling wood chips and energy costs and achieved a slight recovery; the third quarter began to release cost pressure, and paper prices rebounded steadily after the downstream transition to the traditional peak season. In the fourth quarter of 2023, the company's annualized ROE in a single quarter was 14.83%, up about 0.6 pct month-on-month, achieving a net interest rate of 9.22%, an increase of 0.2 pct month-on-month, and profit levels continued to improve month-on-month.
Prices of cultural paper and dissolved pulp all rose, leading to a month-on-month increase in profits in the fourth quarter. After splitting the 2023H2 company's revenue and gross profit structure, cultural paper, kraft paper, and dissolved pulp are still the top three sources of profit contribution. By business: (1) Cultural paper: The rise in pulp prices and strong demand supported the rise and implementation of paper prices. The profit and price spread of cultural paper increased month-on-month in the fourth quarter. (2) Kraft board: Weak demand affected the rise in paper prices during the peak season. The price difference between high-grade box board paper and waste paper declined slightly from month to month in the fourth quarter. (3) Dissolved slurry: The price of dissolved slurry rose 5% month-on-month in the fourth quarter of 2023, and it is estimated that profits will continue to improve month-on-month.
The rise in prices of cultural paper and dissolved pulp after the Spring Festival boosted profits, and the Nanning Phase II project helped medium- to long-term development. After the Spring Festival, as the downstream gradually turned into a peak season, the price of external pulp continued to rise, and the price increase of cultural paper came to fruition smoothly. The price of dissolved pulp also rose, driven by the rise in pulp. The rise in the price of cultural paper and dissolved pulp is expected to boost the company's profits in the first quarter. In terms of new production capacity, the first phase of the company's 300,000 tons of household paper and post-processing products in Nanning is expected to be put into operation in the third quarter of 2024. In addition, the company announced the Nanning Phase II construction plan. It plans to build 400,000 tons of special paper, 350,000 tons of chemical slurry, and 150,000 tons of chemical slurry, with a proposed investment of no more than 7 billion yuan. The Nanning Phase II project will further promote the continuous expansion of the company's pulp and paper production capacity, improve the product structure, and achieve medium- to long-term sustainable development.
Based on pulp and paper price trends, the company's revenue and gross margin assumptions are estimated to be 36.40/39.92/4.493 billion yuan in 2024-2026 (previously forecast net profit to mother for 2024-2025 reached 35.76/37.23 billion yuan respectively), corresponding BPS was 10.15/11.22/12.44 yuan, respectively, and ROE reached 13.4%/13.4%/13.6%, respectively. Combined with the PB valuation range corresponding to historical ROE, the 2024 target valuation is 1.7 times PB, corresponding to the target price of 17.25 yuan, maintaining the “buy” rating.
Risk warning
The risk that macroeconomic growth will slow and terminal demand will not recover as much as expected; the risk that the progress of the company's new pulp and paper projects will not meet expectations