The company released the 2023 annual report and the 2024 quarterly report: 1) 2023: The company achieved revenue of RMB 2,014 million (YoY -2.2%), net profit of RMB 89 million (YoY -15.9%), net profit after deducting net profit of RMB 65 million (YoY -14.0%), traditional business performance was under pressure, and tobacco and alcohol packaging performed well; 2) 2024Q1: The company achieved revenue of RMB 467 million (+4.6% YoY), net profit of RMB 0.18 million (YoY -10.1%), net profit of non-return to mother of $0.13 billion (-14.2% YoY), mainly due to the merger of Q1 Dutch company Fornax B.V., which requires confirmation of revenue after equipment inspection. At the same time, management expenses increased, leading to a loss in the performance of Q1 Dutch Fornax B.V. Company. We expect the actual operating profit of Q1 to increase steadily after excluding the impact of the merger; at the same time, new environmentally friendly paper and plastic projects are launched, and subsequent performance is expected to be gradually released.
Traditional packaging is under pressure, and its share has bucked the trend. In 2023, the company achieved revenue of 1,355 billion yuan (-14.4% YoY) and a gross profit margin of 8.9% (YoY -1.4pct). Unit prices declined and profits were under pressure, mainly due to weak terminal consumption and increased industry competition. The company is deeply involved in corrugated packaging, strives to meet customer product renewal needs, and promotes green environmental protection throughout the product life cycle. The integrated relocation of the Hangzhou base was completed in 2023, further reducing depreciation costs & labor costs. As share expansion and cost reduction and efficiency continue to advance, traditional business profits are expected to rise steadily. We expect traditional businesses to continue to develop steadily in 2024Q1.
Tobacco and alcohol packaging has been steadily improved, and revenue and profits have increased. In 2023, the company's high-end wine bag/boutique cigarette pack business revenue was 279 million yuan/260 million yuan (+31.0%/+69.9% year-on-year), and gross margin was 32.7%/28.1% (+2.3 pct/+6.2 pct year over year), with high revenue growth and increased profitability. 1) Wine bags: In 2023, Sichuan Dashengda Zhongfei achieved net profit of 483.13,000 yuan and net profit of 475.191 million yuan after deducting from mother. High-end wine bags integrate the advantages of both parties, optimize and enrich the customer structure, increase the proportion of major customer orders, show economic benefits, and improve profitability; 2) Tobacco bags: National bidding was liberalized, and the company actively participated in the national China Tobacco Company bidding to further expand the cigarette pack business share, successfully developing China Tobacco's customers in Chongqing, Guizhou, Zhangjiakou, etc., and the revenue and profit are expected to gradually increase.
Profit recovery can be expected, and the cost rate is declining steadily. In 2023, the company's gross margin was 17.0% (+1.0pct year on year), the net profit margin to mother was 4.4% (-0.7pct year on year), the 2024Q1 gross profit margin was 15.2% (-0.6pct year on year), and the net profit margin to mother was 3.8% (-0.6pct year on year). The cost rate increased slightly, and the Q1 sales/management/R&D expenses ratio was 1.5%/6.7%/3.8%, respectively (-0.1 pct/+1.5pct/-0.2 pct compared with the same period).
Cash flow and operating capacity remain stable. Operating cash flow in 2023 was 309 million yuan (YoY +61 million), 57 days of inventory turnover (+9 days year over year), 94 days of accounts receivable turnover (+7 days year over year), 62 days of accounts payable turnover (+11 days year over year); 2024Q1 operating cash flow of 190 million yuan (yoy -0.19 billion), 68 days of inventory turnover (+6 days year over year), accounts receivable turnover days of 97 days (y-o-y -4 days), payables turnover days 61 days (YoY +1 day).
Profit forecast: Considering weak demand and industry competition, we lowered the company's net profit from 2024-2026 to 140 million yuan, 180 million yuan, and 220 million yuan. The corresponding PE valuations were 43.3X, 33.3X, and 27.2X, respectively, maintaining the “gain” rating.
Risk warning: The recovery in market demand fell short of expectations, competition intensified, and raw material prices rose above expectations.