Event: The company released its 2023 annual report. Annual revenue of 39.544 billion yuan was achieved, -0.56% year over year; net profit to mother was 3,086 billion yuan, +9.86% year over year. Among them, Q4 achieved operating income of 10.342 billion yuan, +2.13% year-on-year; net profit to mother of 949 million yuan, +75.51% year-on-year.

Overall revenue was stable in '23, and profit margins recovered quarterly. The company implemented new production capacity in papermaking in '23, and paper revenue increased, while the scale of wood pulp export sales decreased, and overall revenue was stable year-on-year. Benefiting from falling costs and the support of paper prices during the peak season, the company's profitability recovered from a low level quarterly, with a gross profit margin of 15.89% for the whole year, +0.72pct. ; Among them, Q4 gross profit margin was 17.12%, +3.90pct year over year. , helping to increase performance in a single quarter.

Papermaking: Annual revenue of 30 billion yuan, +8.1% year-on-year. Among them, sales volume was +19.6% year-on-year, mainly benefiting from the commissioning of specialty cultural paper and wrapping paper projects in Nanning Park in Guangxi; the tonnage price was -9.6%, or due to changes in product structure (increased production capacity of boxboard paper with relatively low unit prices), and the price of paper such as box board paper and coated base paper may have declined year on year. The gross profit margin of the sector was 14.91%, +1.61pct year on year; of these, the gross profit margin for the second half of the year was 16.23%, +4.25pct year on year. It mainly benefited from cost reductions brought about by falling pulp prices in the first half of the year, as well as price increases for cultural paper and box board paper during the peak season. Looking at specific products: Revenue of uncoated cultural paper/coated paper/box board/household paper/coated base paper was 133/35/98/20/13 billion yuan, +23%/-6%/+34%/-25%, gross margins were 16.6%/12.9%/14.7%/14.4%/4.7%, respectively, +0.1/-2.3/+4.6pct.

Pulp products: Annual revenue of 7.3 billion yuan, -23.8% year-on-year. Among them, sales volume was -20.7% compared to the same period, which was determined to be due to an increase in self-use of chemical paste and a decrease in export sales. The sector's gross profit margin was 17.92%, -1.18ct year-on-year. The judgment was mainly affected by the fall in the tonnage price of the product (-4.0%). Looking at specific products: Revenue from dissolved slurry/chemical slurry/chemical slurry was 37/18/18 billion yuan, -12%/-48%/-8% year-on-year, and gross margins were 16.1%/17.4%/22.1%, respectively, -6.6/+3.6/+1.7pct.

Short-term profits are supported by pulp and paper prices, and we will follow the release of profits during the peak season. Looking at the main products: (1) Chemical Pulp & Dissolved Pulp: Early events such as current strikes and production cuts are still disrupting the supply of wood pulp. At the same time, due to the depletion of wood pulp stocks in European ports, pulp prices fluctuate at short or high levels. Overseas broad-leaf pulp production capacity is expected to expand in the second half of the year, and there is a possibility of a pulping back in pulp prices. There is a correlation between dissolved slurry and chemical slurry prices, so on a comprehensive basis, the company's profit from pulp products is supported by slurry prices in the short term, and may fluctuate in the second half of the year. (2) Cultural paper: On the basis of rising pulp prices, the company's cultural paper price increase was implemented during the peak season in March, and short-term prices are still supported; at the same time, the upward pressure on costs is manageable under the integration of pulp and paper, and profits are expected to remain steady. Paper prices and profits in the second half of the year may be affected by fluctuations in pulp prices. We are relatively optimistic about the company's profit performance as soon as it needs to be released during the peak season. (3) Box board paper: Since the beginning of the year, paper prices have been weak in the off-season, and the profitability of the company's box board paper may be limited. Subsequent paper prices are still expected to be mainly affected by demand factors. We can focus on the company's boxboard paper profit boost during the peak season in the second half of the year.

Pulp and paper production capacity is expanding in an orderly manner, and the scale of woodland continues to expand. (1) In terms of capacity construction, the company launched a household paper project with an annual production capacity of 300,000 tons in October '23, with a total investment of no more than 1.35 billion yuan. The first phase is expected to be tested in Q3 '24. At the same time, the company plans to build the second phase of the Nanning Park project, including production lines with an annual production capacity of 400,000 tons of special paper, 350,000 tons of chemical pulp, 150,000 tons of mechanical pulp, etc., with a total investment of no more than 7 billion yuan. The implementation schedule will be determined according to market conditions. The scale of the company's future capital expenditure is expected to be steady. (2) In terms of forest pulp and paper integration, the company added 10,600 hectares of overseas forest land in 23, reaching 60,000 hectares, and harvested about 460,000 tons of forest resources throughout the year; the company plans to increase its own woodland area to 120,000 hectares by 2030.

While strengthening the company's cost advantage, woodland construction will also help the company achieve its carbon neutrality goals.

Profit forecast and investment rating: The company's net profit for 2024-2026 is estimated to be RMB 37.19, 40.56, and RMB 4.419 billion, with growth rates of 21%, 9%, and 9%, respectively. Currently, the PE corresponding to the stock price is 12, 11, and 10 times, respectively. The company's short-term profit is expected to remain steady, and profit performance can be expected during the peak season; in the long run, the company's three major bases in Shandong, Guangxi and Laos will continue to promote the integrated construction of forest pulp and paper, and strengthen its competitive advantage. Maintain a “Recommended” rating.

Risk warning: Fluctuations in pulp prices exceeded expectations, macroeconomic sentiment was under pressure, project commissioning progress fell short of expectations, and industry competition intensified.