Key points of investment

In 2023, the company achieved revenue of 7.403 billion yuan (-8.44% YoY), net profit attributable to mother of 46 million yuan, and net profit of non-return to mother of 68 million yuan. The 23Q4 alone achieved revenue of RMB 2,019 million (-8.1% YoY), net profit attributable to mother of RMB 0.23 million (YoY -82.9%), net profit excluding net income of RMB 0.1 billion (YoY -92.1%), and Q4 turned a loss into a profit month-on-month.

The 24Q1 company achieved revenue of 1,690 billion yuan (+3.97% YoY), net profit to mother of 42.501 million yuan (+482.4% YoY), and net profit excluding non-return to mother continued to improve in 24Q1.

23Q4 turned a month-on-month loss into a profit, and a year-on-year recovery can be expected in '24

By product, in 2023, the company's white cardboard/thermal and sublimation transfer paper/self-adhesive products achieved revenue of 36.20/16.98/1,252 billion yuan, respectively -14.89%/-7.77%/+11.28% year-on-year. The gross margins of the company's white cardboard/thermal and sublimation transfer paper/self-adhesive products were -0.2%/15.8%/5.8%, respectively, and -12.30pct/+0.03pct/-5.61pct. The sales volume of white card paper/thermal and sublimation transfer paper/self-adhesive products was 57.20/21.13/941,000 tons respectively, -6.7%/+7.2%/+2.3% year-on-year, respectively. The price per ton was 6329/8036/13302 yuan/ton, respectively, -8.82%/-13.95%/+7.81% year-on-year. The decline in profits of the company's main product, white cardboard, is mainly due to weak demand in the terminal market, serious imbalance between supply and demand in the market, the price of superimposed wood pulp fluctuated greatly, and the profit improvement of 2023Q1-Q3 still consumes some high-priced machine pulp. The 23Q4 high-price pulp has basically been digested, and the prices of specialty paper categories such as heat transfer and heat sublimation have picked up. 23Q4 turned losses into profits, and 24Q1 raw material costs continued to decrease, and the performance was beautiful year-on-year. Since March 2024, pulp price fluctuations have intensified. The company's main product, transfer paper, issued a price increase letter of 1,000 yuan/ton. Considering the transportation and inventory cycle, the 2024Q2 cost fluctuation is expected to be relatively manageable, and the company's performance is expected to recover year-on-year as demand recovers.

24Q1. Profitability expense ratio was stable, cash flow improved month-on-month (1) Profit margin: In '23, the company achieved a gross profit margin of 6.36% (-7.85pct year on year) and achieved a net profit margin of -0.62% (-5.41pct year on year). The 24Q1 company achieved a gross profit margin of 14.03% (YoY +4.03pct, month-on-month +6.99pct), 24Q1 net profit margin of 2.52% (YoY +1.28pct, month-on-month +1.37pct), and profitability continued to improve month-on-month.

(2) Period expense ratio: The cost rate for the 23-year period was 9.33% (YoY +1.58pct), of which the sales expense ratio was 1.09% (YoY +0.13pct), the management and R&D expenses ratio was 8.25% (YoY +1.29pct), and the financial expense ratio was 0.00% (+0.16pct yoy), which resulted in an increase in the scale of loan financing and an increase in interest expenses.

(3) Operational efficiency and cash flow: In '23, the company's accounts receivable and notes were $937 million (+$46 million), accounts receivable turnover days were 44.44 days (+7.50 days year over year), total notes payable and accounts payable were $1,581 billion (+460 million yuan year over year), and accounts payable turnover days were 43.43 days (year-on-year +7.61 days). Inventory was 1,034 million yuan (year-on-year -0.52 billion yuan), and the number of inventory turnover days was 55.03 days (+5.49 days year-on-year). In terms of cash flow, net operating cash flow in '23 was -263 million yuan (year-on-year -1,050 million yuan), mainly due to the decline in net profit for the current period. Net fundraising cash flow was 539 million yuan (+556 million yuan year over year), mainly due to increased project investment, decline in operating cash flow, and increase in loan size.

A leader in differentiated specialty paper. Production capacity expansion is underway. Moving towards pulp and paper integration, the company plans that the 300,000 ton high-grade coated white cardboard project has completed the main equipment installation, and the 60,000-ton specialty paper project has completed plant capping and equipment installation, and is expected to be put into operation in the middle of '24 and the end of '24, respectively. The company acquired 100% of Zhanjiang Zhongshi's shares in June 23 and began the construction of the Zhanjiang Zhongshi 400,000-ton pulp mill project. We expect that the cycle fluctuations will be effectively smoothed out after the completion of our own pulp line. In addition, the company invests in leading industries in R&D and launched new products such as digital thermal printing film and medical film coatings in the field of specialty materials, which is expected to contribute new profit growth points in the future.

Profit forecasting

Due to the large number of new production plans in the industry in 24, the demand recovery slope and the uncertainty of raw material cost fluctuations, we lowered the company's profit forecast. The company's revenue for 24-26 is 86/95/101 billion yuan, +16.56%/+10.36%/+6.23% year over year, net profit to mother is 1.81/3.00/ 374 million yuan, +492.04%/+65.62%/+24.73%, corresponding EPS is 0.10/0.16/0.20 yuan, PE is 30/18/15X, Maintain an “Overweight” rating.

Risk warning

Risk of large fluctuations in product prices; risk of demand recovery falling short of expectations; risk of large fluctuations in pulp prices