Company announcements

23A achieved revenue of 15.223 billion yuan (-7% YoY), net profit of 1,438 billion yuan (YoY -3%), and deducted non-net profit of 1,494 billion yuan (YoY -1%). The operation was affected by a combination of factors such as international geopolitical differences and trade protectionism.

23Q4 single-quarter revenue of $4.416 billion (+2% YoY), net profit to mother of $453 million (-3% YoY), and deducted non-net profit of $458 million (+5% YoY).

With 24Q1 revenue of $3.476 billion (+19% YoY, above 22Q1 level), net profit to mother of $219 million (+21% YoY), and net non-net profit of $243 million (YoY +54%), Q1's performance was better than market expectations.

3C business MR is expected to bring new demand, and environmental protection and cigarette packs will continue to improve 1) 3C business-basic market: According to the latest report released by IDC, in the first quarter of 2024, global smartphone shipments increased 7.8% year-on-year to 289.4 million units, achieving a third consecutive quarter of growth. It is optimistic that the 24-year boom will continue to recover, driving the company's revenue recovery from traditional consumer electronics products such as mobile phones. The total sales amount of the top 5 23A customers accounted for 37.46% of total revenue (38.42% in '22), of which the first and second places totaled $3.847 billion ($3,992 billion in '22), and the number of major customers remained stable.

2) 3C business - incremental market: MR is expected to bring incremental markets. With the official launch of VisionPro, the first headset device for customer A, Renhe Smart, a subsidiary of Yutong, has outstanding R&D capabilities and obvious net interest rate advantages. Yutong has deep cooperation with A customers and is expected to introduce orders. We expect the value of a single set of packaging materials to be high (because the initial price of this high-end device is expected to start at $3,499).

3) Tobacco packs and wine bags: Continue to enter into cooperation with Chinese tobacco companies in many provinces to deeply cultivate the middle and high-end liquor customer market, benefiting from the optimization of the competitive landscape and the expected increase in its share.

4) Eco-friendly packaging: Currently, the majority of the company's environmental protection business still mainly serves 3C customers, and it is expected that the 3C boom will recover and improve at the same time. In 2023, the company successfully introduced many major European and American customers, and continued to explore and innovate, participating in and formulating many industry standards. The all-plant cellulose membrane products developed by the company's Environmental Protection Research Institute received widespread attention and coverage from Packaging Europe and other well-known European industry media due to their excellent environmental performance, and are optimistic about the future growth space of Yutong Environmental Packaging.

Smart factories have been put into operation one after another, and overseas Vietnamese factories have improved their supply chain advantages 1) Domestic factories: the construction of the Yutong Smart Factory in Hunan was successfully implemented in 2023, collaborating with the Xuchang Smart Factory cigarette pack production base to help the company develop the steady development of the cigarette pack business; Suzhou Yutong Smart Factory completed, successfully tested and operated to efficiently meet the needs of the East China market; Chengdu Yutong Smart Factory Phase I was completed, creating a new model for smart smart factories for consumer electronics and wine bags in the southwest market; Jiujiang Yutong Smart Factory Phase I and Longgang Yutong Smart Factory are in progress; warehousing Construction of the logistics system began; during the same period, intelligent construction in other regions such as Luzhou Yutong, Chongqing Yutong, Yantai Yutong, and Haikou Yutong continued to be planned and promoted.

2) Overseas factories have started the first phase of construction of the Vietnam Smart Factory to build the company's overseas smart model factory.

23A domestic/overseas revenue was -12%/+15%, respectively. Vietnam Yuhua's subsidiary had revenue of 680 million yuan and net profit of 161 million in 23 years (profit margin of 23.7%).

Capital expenditure is declining year by year, and dividends are increasing to better give back to shareholders

1) The dividend ratio increased dramatically: the 23 annual report dividend of 570 million yuan, plus the previous 23 annual report dividend of 300 million yuan, a total dividend of 870 million yuan, accounting for 60.3% of net profit attributable to mother. In addition, 150 million repurchases were completed in 2023, plus repurchases accounted for more than 70% of net profit attributable to mother. In '24, the company plans to implement a new round of repurchases of 1-2 billion dollars.

2) Behind the increase in dividends is a reduction in capital expenditure: Since its listing, Yutong has maintained a high capital expenditure and built more than 50 production bases and service centers around the world. As years of capital investment entered the harvest period, the growth rate of capital expenditure has slowed down. 1.6 billion in '22 (-14% YoY), $1,169 billion in '23 (-27% YoY), and 24Q1 were 212 million (-26% YoY). Subsequent additions to the company's production capacity will mainly focus on the transformation of smart factory projects. We do not expect a significant increase in land and plant expenses.

Financial indicators:

The actual profitability of the company's main business increased significantly in 23 years:

1) The acquisition targets contributed less to the 23-year results: Renhe Smart's profit of 0.28 million (112 million in '22) and Shenzhen Huabaoli's 0.18 million ('34 million in '22).

2) Exchange gain of $60 million in '23 ($152 million in '22); investment loss of 100 million ($90 million in '22) due to forward settlement operations.

3) 23A gross profit margin of 26.23% (YoY +2.48pct), of which 23Q4 gross profit margin was 28.14% (YoY +1.85pct). Entering 24Q1, the gross profit margin was 22.09% (-1.63pct year on year), or the recent rise in pulp prices, but the 24Q1 financial expense ratio was -2.56pct year on year, so profit margins are improving.

Profit forecasting and valuation

Yutong is a diversified paper packaging leader. It digs deep into customer share and extends the service chain. One-stop solution capabilities and customer stickiness are constantly increasing, and it is optimistic about long-term growth. The estimated 2024-2026 revenue is 17.537 billion (+15.2%), 19.754 billion (+12.64%), 22.163 billion (+12.19%), net profit due to mother of 1,682 billion (+16.98%), 1,898 billion (+12.83%), and 2.09 billion (+11.10%). The corresponding PE is 14.55X, 12.90X, and 11.61X, respectively, maintaining the “buy” rating.

Risk warning: raw materials are rising, demand falls short of expectations