Incident: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 29.33 billion yuan, -14% year on year, net profit to mother of 160 million yuan, reversing losses year on year; 2024Q1 company revenue was 6.67 billion yuan, +5% year over year, and net profit to mother was 40 million yuan, +111% year over year.
By product, in 2023, the company's boxboard paper revenue was 11.23 billion yuan, year-on-year -12%, gross profit margin +1.3 pct; corrugated paper revenue was 4.28 billion yuan, -6% year-on-year, gross profit margin 9.5%, +2.5pct; revenue from other raw paper was 3.73 billion yuan, -17% YoY, gross profit margin 6.6%, +0.1 pct; paper products revenue of 7.08 billion yuan, -8% YoY, gross profit margin of 2.12 billion yuan, 4.3% YoY, gross margin 10.7 pct %, +7.5pct year over year. Among them, the gross margin of the packaging sector has increased, mainly due to the further increase in the share of the carton business in the sector, continuous optimization of the carton and cardboard business structure; expanding the industrial paper and plastic business; building four industrial paper and plastic bases in Putian, Zhuhai, Jiashan and Vietnam. The scale has reached the upper middle level in the industry, providing customers with environmentally friendly tableware products using bamboo pulp and sugar cane pulp as the main raw materials, further increasing the market share of the company's high-margin circuit.
Cost reduction and efficiency are consolidated, and the cost ratio is expected to continue to be optimized. In 2023, the company's gross profit margin was 9.9%, +2.6 pct year on year, net profit margin was 0.5%, year on year +7.2pct, sales/management/R&D/finance expense ratios were 1.3%/4.8%/2.9%/3.6%, respectively, and +0.1pct/+0.1pct, respectively. The increase in financial expense ratio was mainly due to increased interest expenses and exchange losses. 2024Q1's gross profit margin was 9.9%, +2.2pct year on year, net profit margin 0.6% year on year, +6pct year on year, sales/management/R&D/finance expense ratios were 1.3%/4.4%/2.7%/4.1%, respectively, and -0.1pct/-1.7pct/-0.7pct. The company will continue to strengthen various cost reduction and efficiency results, and improve asset operation efficiency.
Adhere to the integrated development strategy of the industrial chain and continue to extend upstream and downstream of the industrial chain. On the raw materials side, the company actively cooperated with various parties to innovate recycling models, broaden recycled fiber channel construction and service functions, expand the renewable resource recycling business layout, and build a moat for raw materials; in the packaging business, promote regional collaboration and regional customer growth, further enhance the overall packaging operation capacity, continuously optimize the large customer center management system, integrate core tracks with excellent performance, and develop high-diving tracks. In 2023, the share of major customer orders in the packaging sector group's sales order share It rose to 42%, an increase of about 9 percentage points over the previous year.
Zero tariffs on imports of finished paper continue, the marginal impact may weaken, and industry profits are expected to recover. The Customs Tariff Commission of the State Council issued a notice. Starting from January 1, 2023, China will adopt zero tariffs on major types of paper such as corrugated paper, recycled box board paper, white cardboard, double adhesive paper, and coated paper. After the import tariffs were abolished, the import cost of corrugated box board fell sharply, which had an obvious impact on the Chinese market. The zero-tariff policy continued in 2024, but due to regional security incidents, shipping risk exposure increased, prices of imported waste paper and wood pulp increased, and the price gap between finished paper products at home and abroad may be compressed. Under the expectation that the tariff policy remains unchanged and overseas demand recovers weakly, the total amount of imported paper is expected to remain high in 2024, but considering the increase in total domestic market capacity and import costs, the increase in imported paper may be limited, and there is room for repair in domestic waste paper prices and corporate profits.
Profit forecast and rating: Along with the steady expansion of production capacity, the scale effect is expected to be gradually released. The company's net profit to mother in 2024-2026 is expected to be 553 million yuan, 702 million yuan, and 956 million yuan, corresponding to PE of 14x/11x/8x. Refer to comparable company valuation levels and give a “recommended” rating.
Risk warning: competition in the industry intensifies; demand for terminals falls short of expectations; fluctuations in raw material prices, etc.