Incident Overview

The company released its 2024 quarterly report. During the reporting period, the company achieved revenue of 835 million yuan, an increase of 6.34% over the previous year; realized net profit of 86 million yuan, an increase of 10.86% over the previous year; and realized deduction of non-net profit of 81 million yuan (mainly 2.1621 million yuan of government subsidies included in current profit and loss of 4.599 million yuan), an increase of 5.5% over the previous year. In terms of cash flow, net cash flow from operating activities was -072 billion yuan, an increase of 36.78% over the same period last year. Due to the increase in prepaid material payments, prepaid accounts increased 132.21% from the beginning of the year, and receivables financing increased by 50.70% compared to the beginning of the year.

Analytical judgment:

Revenue side: Revenue achieved steady growth. The share of film business revenue is expected to increase further in 2024 Q1. The company's revenue is steadily recovering in downstream demand combined with the strong required attributes of terminal consumer demand, and the performance achieved steady improvement, achieving revenue of 835 million yuan, an increase of 6.34% over the previous year. We expect that with the release of the production capacity of the company's new BOPE film project with an annual output of 33,000 tons and the new functional film material project with an annual output of 8,000 tons, the company's share of the film business will further increase, in line with the increasing demand for environmentally friendly, green, degradable plastics and recyclable single-material plastic packaging in China, which is expected to become a new growth curve for the company's future performance. Furthermore, since its listing, the company has paid dividends 20 times, with a cumulative dividend ratio of nearly 70%, and has high-quality and stable long-term investment attributes.

Profit side: Gross margin has declined, and expense ratio control is better

In terms of profitability: In Q1 2024, the company achieved a gross profit margin of 22.06%, a year-on-year decrease of 2.35 pct, and a month-on-month decrease of 2.19 pcts. We expect this is mainly due to an increase in raw material prices and an increase in the share of the film business with lower gross profit; the company achieved a net profit margin of 10.49%, an increase of 0.41 pct year over year, and a decrease of 2.54 pct month-on-month. In terms of expenses: In Q1 of 2024, the company's fee rate for the period was 10.87%, a year-on-year decrease of 0.57pct. Among them, the sales/management/finance expense ratios were 2.08%, 4.53%, and -0.09%, respectively, with year-on-year changes of -0.08, -0.39, and -0.1 pct. The company's R&D expenses rate increased by 0.01pct to 4.35% year-on-year. The company's R&D expenses have risen year by year, accounting for about 4% of revenue in recent years. The company has continuously strengthened technological innovation. Through years of technology accumulation, the company has a first-mover advantage in product upgrades, product replacement, and product restructuring, which can continuously meet new customer product needs and enhance its core competitiveness.

Investment advice

We are optimistic about Yongxin Co., Ltd. As a leader in the plastic flexible packaging industry, the company has outstanding comprehensive strength. The vertical integration strategy continues to reduce costs and increase efficiency, and the gradual expansion of the film business are expected to drive steady growth in the company's performance. We keep our previous profit forecast unchanged. We expect the company's revenue for 2024-2026 to be 38.31/43.14/4.820 billion yuan, respectively, and EPS of 0.76/0.87/0.98 yuan, respectively, corresponding to the closing price of 10.72 yuan/share on April 25, 2024, and PE 14/12/11X, respectively. Maintain the company's “buy” rating.

Risk warning

1) Consumption recovery fell short of expectations. 2) Production capacity deployment progress fell short of expectations. 3) Fluctuations in raw material prices. 4) The expansion of the thin film business is not going well.