The company released its 2023 annual report: In 2023, it achieved revenue of 8.553 billion yuan (+10.5% YoY), net profit of 664 million yuan (YoY -6.6%), net profit of 595 million yuan (YoY +6.8%); Single Q4 achieved revenue of 2,341 billion yuan (YoY +5.1%), net profit to mother of 282 million yuan (+96.7% YoY), net profit of non-return to mother of 280 million yuan (YoY +196.02%).
Costs are declining, and profit recovery is beautiful. According to our estimates, the sales volume of a single Q4 was about 284,000 tons, or 14,000 tons (sales volume was stable month-on-month after excluding food cards); the average price was about 8,254 yuan/ton (+45 yuan/ton month-on-month); the profit per ton of headquarters was about 824 yuan/ton (+456 yuan/ton month-on-month). After excluding food cards, the profit of tissue paper tons exceeded 1,000 yuan/ton (about +500 yuan/ton month-on-month). Due to early downstream inventory replenishment and customer structure adjustments, Q4 sales volume fell slightly month-on-month, and the overall average price was stable. Benefiting from the improved cost of storing low-price pulp, the profit per ton improved dramatically. Looking forward to the future, 24H1 still has room to raise prices, and is expected to maintain a high level of profit per ton due to early storage of pulp and manageable room for expected cost increases. Q4 Due to increased competition, benefiting customers & seizing share, Xia Wang expects average price & profitability to decline month-on-month, but it is still at a high position.
Excellent performance in multiple categories, and diverse matrices drive growth. Household consumption/food & medical/business exchange/tobacco/electrical industry revenue in 2023 was 41.07/17.32/7.12/8.12/681 million yuan, respectively (+15.5%/14.6%/-8.0%/+0.8%/+17.9%). The impressive performance of daily consumption was mainly due to downstream expansion & demand. Among them, the label release & transfer series had a year-on-year increase of +25.3%/+28.3%; the high apparent growth rate of food & medical care was mainly due to the addition of 300,000 tons of food card production capacity (releasing 105,700 tons of sales in 23 years); paper for the electronics industry steadily grasped market opportunities and accelerated share. Among them, the sales volume of electrolytic capacitor paper reached 5,100+ tons, revenue +12.4% year-on-year.
The integration process of forest pulp and paper is accelerating, and the cost cycle is gradually weakening. The company's Hubei project was completed in January '24 (focusing on decorative base paper and food packaging), and the Guangxi (focusing on food, medical and daily consumption) project is expected to be put into operation in Q2. In addition, with superior natural resource advantages (Hubei Reed & Poplar, Guangxi Eucalyptus Fast Growth Forest), the new paper production line will be powered by some forest pulp resources. As the forest slurry self-sufficiency rate increases, the company's cost advantage is expected to strengthen, and the impact on the cycle will gradually weaken.
Profitability has been greatly improved, and expenses have been stabilized. The gross margin for 2023 was 11.62% (+0.1pct year over year), and the net profit margin to mother was 7.76% (YoY -1.4pct); the gross margin for a single Q4 was 18.05% (+9.1pct year over year), and the net profit margin to mother was 12.04% (+5.6pct year over year). Along with improving the cost of storing low-priced slurry, Q4 profitability improved significantly. In terms of cost performance, the cost rate for the full year was 5.5% (+1.4pct year on year), with sales/management/R&D/finance expenses ratios of 0.38%/1.32%/2.13% (+0.04/+0.11/-0.02/+1.25pct), respectively. The cost rate fluctuation mainly caused 50 million exchange losses in 23 years.
Cash flow is stable, and slurry storage guarantees profits. Net operating cash flow in 2023 was 62 million yuan (year-on-year -10 million yuan), and Q4 was 785 million yuan (year-on-year +1,243 million yuan). In terms of operating capacity, as of the end of 2023, the number of days receivable, payable, and inventory turnover was 57.27/75.68/115.05 days (-1.49/+24.52/+10.43 days), respectively. The increase in inventory was mainly due to the company's centralized storage of pulp (raw material inventory at the end of 2023 +549 million yuan year on year).
Profit forecast: The net profit for 2024-2026 is expected to be 1.07 billion yuan, 1.44 billion yuan, and 18.01 billion yuan, respectively. The corresponding PE valuations are 11.9X, 8.9X, and 7.1X, respectively, maintaining the “buy” rating.
Risk warning: Raw material prices fluctuated beyond expectations, production capacity investment was delayed, and competition intensified.