Introduction to this report:
The company's performance is in line with expectations. Pulp harvesting has fully recovered. In order to save potential for subsequent growth, pulping stations have been built one after another to raise the long-term pulp harvesting ceiling and maintain an increase in holdings rating.
Key points of investment:
Maintain an increase in holdings rating. The 2024-2025 forecast EPS was maintained at 1.06/1.28 yuan, and the 2026 forecast EPS was added at 1.54 yuan. The reference sector valuation gave the 2025 target PE 27X, maintained the target price of 34.56 yuan, and maintained an increase in holdings rating.
The performance was in line with expectations. The company's 2023 revenue was 2,329 billion yuan (-3.2% year on year, same below), net profit of 612 million yuan (+4.3%) after deducting non-net profit of 565 million yuan (+9.1%). Under the influence of the epidemic on pulp harvesting, 2023Q1 and Q2 were affected to a certain extent. They gradually recovered from Q3, and the annual results were basically flat, in line with expectations. 2024Q1 achieved strong growth on a low basis with revenue of 436 million yuan (+67%), net profit of 122 million yuan (+116%), after deducting non-net profit of 108 million yuan (+197%).
Pulp harvesting has fully resumed, saving potential for subsequent growth. Demand for blood products terminals continues to be high. Key varieties such as Jingacrylic are in short supply, and sales still depend on production. The company fully resumed pulping in 2023, with a pulping volume of more than 1,200 tons. Raw materials of 421 million yuan in early 2024 (292 million yuan in early 2023) and 362 million yuan in products (193 million yuan in early 2023) were all significant improvements over the same period. Some of them changed to 2024Q1 results, and the rest is expected to continue to be reflected in Q2. Overall inventory at the end of 2024Q1 increased further by 196 million yuan to 1.05 billion yuan compared to the beginning of the year, saving potential for subsequent growth.
Pulp stations are being built one after another to raise the long-term pulping ceiling. Through a combination of endogenesis and epitenesis, the company has entered the ranks of thousand-ton blood production companies. As of the 2023 annual report, it has 38 pulp stations, of which 17 are in Shuanglin, Guangdong, and 2 are awaiting inspection; Pacifico has 17 pulp collection stations, 2 are awaiting inspection. It is expected that all 2024H1 will complete the inspection and begin pulping. As the old pulp station digs and the new pulp station climbs the slope, the amount of pulp collected is expected to continue to increase. The entry of Shaanxi Coal is also expected to enable the establishment of new pulp stations and enhance long-term potential.
Risk warning: terminal supply and demand changes, pulp extraction volume growth falls short of expectations