Key points of investment

Basic events

The company achieved revenue of 1,726 billion yuan in 24Q1 (+37.17% year over year), net profit due to mother of 134 million yuan (year-on-year loss reversal), and net profit after deducting non-return to mother of 132 million yuan (year-on-year loss). 24Q1 results showed a beautiful year-on-year increase.

24Q1's performance grew beautifully, and the integration of pulp and paper progressed smoothly in 24 years. We estimate that 24Q1 achieved sales of 285,000 tons, tonne revenue of 6057 yuan (+19 yuan month-on-month), tonne cost of 5595 yuan (+120 yuan month-on-month), net profit of 470 yuan per ton (-71 yuan month-on-month). Since March, the price increase for company cultural paper, transfer paper, glassine paper, etc. has been relatively smooth. The average price of Q1 has increased slightly month-on-month. Continue to issue 500 yuan/ton price increase letter ; Q1 wood pulp costs rose slightly month-on-month. Considering the wood pulp transportation and inventory cycle, the 24Q2 cost increase is expected to be relatively manageable, and the 24Q1 company has put into operation 300,000 tons of machine pulp. Q2 production capacity continues to rise. It is expected that costs will be further smoothed out after the self-owned pulp line is fully produced, and there is still room for profit optimization.

Cash flow and profit margins have been greatly improved, and expense ratio management is good

(1) Profit margin: The 24Q1 company achieved a gross profit margin of 12.96% (YoY +9.54pct, -2.15pct month-on-month) and achieved a net profit margin of 7.75% (YoY +10.12pct, -1.19pct month-on-month).

(2) Expense rate for the period 24Q1:4.94% (YoY +0.84pct, month-on-month +0.70pct), of which the sales expense ratio was 0.22% (YoY +0.04pct, month-on-month +0.15pct), management and R&D expenses rate was 2.99% (+0.47pct YoY, +0.17pct month-on-month), and the financial expense ratio was 1.73% (YoY +0.32pct, month-on-month +0.38pct).

(3) Operational efficiency and cash flow: 24Q1 company's accounts receivable and notes of $1,051 million (YoY +161 million yuan, -0.55 million month-on-month), accounts receivable turnover days of 56.26 days (YoY -11.57 days, -2.08 days), total notes payable and accounts payable were $909 million (YoY +0.17 billion yuan, Q-170 million); inventory of RMB605 million (YoY -263 million yuan, month-on-month +0.29 million yuan). The number of inventory turnover days was 35.33 days (-21.20 days year over year, -2.36 days month over month). In terms of cash flow, net operating cash flow for 24Q1 was $173 million (+220 million yuan year over year, -$348 million).

Diversified specialty paper leaders, and the integrated layout of pulp and paper continues to be deepened

The company is a leading domestic food wrapping paper, expanding the diversified paper type landscape, and the integrated layout of pulp and paper+diversification of products enables growth. By the end of 2023, the company had built 12 production lines, with a total design capacity of 1.416 million tons. In 2023Q3, the company acquired a subsidiary of Wuzhou Special Paper (Longyou) to add an additional 35,000 ton industrial liner production line. The product matrix was further enriched. The 300,000 ton pulp production line built by the company at the Jiangxi base is expected to be put into use in the first quarter of 2024. In terms of additional production capacity, 4 paper production lines at the company's Hubei base and 1 paper production line at the Jiangxi base have been under continuous construction in 24 years, and it is expected that the raw paper production capacity of more than 2 million tons will be formed in 2024. The company's Quzhou, Hukou and Hanchuan regions are developing collaboratively to make complementary use of resource advantages, and the integration of pulp and paper and product diversification continue to deepen, and long-term growth momentum is sufficient.

Profit forecasting and valuation

We expect the company's 24-26 revenue to be 75.78/86.39/9.836 billion yuan, respectively, +16.24%/+14.00%/+13.85% year-on-year; net profit to mother of 5.52/7.15/836 billion yuan, +102.45%/+29.44%/+16.88% year-on-year respectively, corresponding to PE 11X/9X/7X, maintaining the “gain” rating.

Risk warning

The recovery in downstream prosperity fell short of expectations, raw material costs fluctuated greatly, too much new production capacity was invested, and market competition worsened.