Overview: Forest pulp and paper integration, leading position in the industry
After more than 40 years of development, Sun Paper has become the world's advanced integrated multinational group of forest pulp and paper. It has three major production bases in Shandong, Guangxi and Laos, employs more than 19,000 people, and ranks among the top 500 Chinese companies and the top 30 paper makers in the world. The company now has the world's advanced pulp and paper production lines, and the products have gradually formed a series of product structures dominated by high-grade cultural paper, high-grade packaging paper, high-grade household paper, high-grade specialty paper and special fiber dissolving pulp. In 2003-2023, the company's operating income CAGR was 14.56%, net profit CAGR to mother was 15.56%, and the company's performance increased steadily in the midst of cyclical fluctuations.
Industry: The bottom of the cycle has passed, and the industry pattern is improving
In terms of cycle, we judge that in October 2023, the paper industry has entered a stage of passive inventory removal, the price of finished paper products increased, and paper companies' profits showed signs of recovery. Reviewing the last round of the 2019.11-2021.1 passive inventory removal cycle phase, leading companies in the sector had obvious “excess preemption” characteristics, and the excess income of leading companies was most obvious in this stage. In terms of pulp prices, overseas strikes in the beginning of 2024, pulp mill maintenance, etc. led to tight supply, and domestic and overseas demand improved in stages. At the same time, paper mill and port inventories were low, and short-term pulp prices were strong; global broadleaf pulp supply pressure continued in 2024, and demand has shown a trend of marginal improvement. It is expected that pulp prices may fluctuate at a low level. In terms of products, 1) Cultural paper: Since February 2024, many rounds of price increases for cultural paper companies have been successfully implemented. March-March is the traditional peak season for cultural paper, and the competitive pattern for cultural paper is relatively stable. As paper prices rise further, the profitability of cultural paper companies will be further restored. 2) Box board corrugated paper: The demand side has been repaired well, but compared to cultural paper, the pace of storage is slow, and it is still at a high level in history. On the supply side, a lot of domestic production capacity has been added, and the reduction in tariffs has boosted the import supply chain and squeezed out domestic supply. Due to the imbalance between supply and demand, the impact of imports, the short-term downward pressure on corrugated board is still strong, and profit margins are under pressure under market competition pressure.
Company: Horizontal product diversification, vertical forest pulp and paper integration
In terms of products, the company has been steadily implementing the “433” medium- to long-term development strategy since 2012. While consolidating the main paper industry, the company has developed new biomass materials based on the paper industry's technology, capital, talents, etc., and has steadily constructed a “433” strategic pattern where industrial paper accounts for 40% of profits, new biomass materials account for 30%, and FMCG products account for 30%, and has now achieved diversified product configurations. In terms of production capacity, the company currently has three major papermaking bases in Shandong, Guangxi, and Laos. With the gradual implementation of the construction and technical improvement project of the Guangxi base's Nanning Park and entering the trial production stage, the company's total production capacity of paper and pulp has exceeded 12 million tons. The collaborative development of the company's “three major bases” in Shandong, Guangxi and Laos has steadily built the company's “forest pulp and paper integration” industry chain, which is more capable of smoothing the cyclical fluctuations in the ironing industry. In terms of cost, the company's cost advantage mainly comes from raw materials, energy, depreciation and other manufacturing expenses. Under the cost advantage, the company's profitability is significantly higher than that of its peers, and the gross margin of cultural paper coated paper ranks among the highest.
Profit forecasts and investment advice
As a leading domestic paper company, the integrated cost advantage of Lin Pulp and Paper is obvious. In the short term, with the completion of the first phase of the Guangxi Nanning base project and the construction of the second phase of the project, the expansion of production capacity contributed to an increase in performance, and the long-term forest resource barriers at the Lao base were stabilized. We expect the company's revenue for 2024-2026 to be 439.27/468.95/50,146 billion yuan, respectively, up 11.1%/6.8%/6.9% year on year; net profit to mother will be 36.73/41.37/ 4.599 billion yuan, respectively, up 19.0%/12.6% /11 year on year.
1% As of April 24, 2024, the total share capital and EPS corresponding to the closing market value were 1.31/1.48/1.65 yuan, respectively, and the corresponding PE was 11.85/10.52/9.46 times, respectively. First coverage, giving a “buy” rating.
Risk warning
The risk of increased market competition, the risk of fluctuations in raw material prices, the risk of exchange rate fluctuations, and customer credit risk.