Key points of investment:
The company announced its 2024 quarterly report, and the results were basically in line with market expectations. 2024Q1's quarterly revenue was 835 million yuan, up 6.3% year on year, net profit to mother 86 million yuan, up 10.9% year on year, after deducting non-net profit of 81 million yuan, up 5.5% year on year.
Revenue side: The film business continues to grow rapidly, and the overseas business continues to grow. 1) The film business has achieved high growth, and a single material can be recycled and used gradually to be released. In 2023, the film business achieved revenue of 525 million yuan, an increase of 14.5% year on year, and sales volume increased 44.9% year on year. With the release of production capacity of the 8,000-ton new functional film material project and the 33,000-ton new BOPE film project, the 24Q1 film business continued to increase. It is expected that BOPE will continue to drive film revenue growth after the second line of BOPE is put into operation. 2) Overseas business is growing steadily and continues to enter the supply chain of overseas multinational companies. Overseas business reached 380 million yuan in 2023, up 7.8% year on year, and overseas business continued to grow steadily in 24Q1. The competitive pattern in overseas markets is better, and the company enjoys higher gross profit margins, driving increased profitability.
On the profit side, competition is fierce and gross profit is under pressure, actively promoting internal cost reduction and efficiency, and optimizing profit margin levels. The company gives full play to the supporting advantages of the industrial chain, uses group management to reduce costs and increase efficiency through scale effects; at the same time, it promotes MES systems and refined production process control. The 24Q1 company achieved a gross profit margin of 22.1%, a year-on-year decrease of 2.4 pct, mainly due to an increase in the share of film, dilution of gross profit margin, and intense competition in the industry and a drop in average prices. The 24Q1 company achieved sales expense ratio, management expense ratio, and R&D expense ratio of 2.1%/4.5%/4.4%, which were the same as -0.1 pct/-0.4 pct/, respectively. Effective cost control and other benefits brought about by the $11 million value-added tax credit policy boosted the company's net interest rate level and achieved a net profit margin of 10.4% to mother, an increase of 0.4 pct over the previous year.
Environmental protection policies promote increased industry concentration and the development of single-material recyclable materials that are easy to recycle. The company actively invests in research and development to expand new markets and new businesses. Food safety and environmental protection policies have become stricter, small and medium-sized production capacity has been cleared, and the concentration of leaders is expected to continue to increase. The company actively invests in research and development, and is jointly engaged in new product research and development with major customers, focusing on single-material, easy-to-recycleable and recyclable packaging materials. Currently, the main demand is mainly the renewal and iteration of film materials from overseas multinational companies, while also promoting the expansion of film business application scenarios, such as toothpaste tubes, electronic products, cheese films, etc.
The company is a leader in plastic soft bags and has been operating steadily for a long time. The downstream is a leader in mass consumer goods, reflecting countercyclical characteristics. Benefiting from food safety, environmental protection policies and product upgrading trends, industry concentration continues to increase. In the short term, the company has benefited from a recovery in downstream consumption. In the medium to long term, production capacity expansion continues to bring revenue contributions, the film business and overseas market expansion have opened up room for growth, and product structure upgrades have boosted the center of profit margins. The company strengthened its high dividend policy, with a dividend rate of 83% in 2023, providing stable returns.
Considering that it will take time for downstream demand to recover and market competition is fierce, the company's net profit forecast for 2024-2026 was slightly lowered to 4.64/5.22/590 million yuan (the original forecast value was 4.76/5.45/625 million yuan), and the net profit to mother for 2024-2026 was +13.6%/+13.0% year-on-year, respectively. The corresponding PE was 14/13/11X, maintaining the purchase rating.
Risk warning: Downstream consumer demand is weak and oil prices fluctuate.