Core views:
Sun Paper released its quarterly report for '24. In the first quarter of '24, the company achieved revenue of 10.185 billion yuan, +3.87% year-on-year; realized net profit of 956 million yuan, +69.04% year-on-year and +0.74% month-on-month.
The company achieved positive year-on-year and month-on-month growth on the profit side, and the performance was outstanding. Currently, the paper industry is still facing some pressure. The resilience of Sun Paper is prominent, and it is expected that it will continue to widen the competitive gap with small enterprises and expand its leading advantage.
The integrated advantages of forest pulp and paper are gradually expanding. The company's gross margin reached 17.99% in the first quarter of '24, +4.48pct year on year and +0.87pct month-on-month. The trend of improving gross margin is expected to continue. According to the 23rd ESG report issued by Sun Paper, since the company began the Laos Forest Pulp and Paper Integration Project in 2008, the company's woodland area had reached 60,000 hectares by 23, and the total annual pulp and paper output was about 1.38 million tons, +10% over the same period last year. The company's accelerated planting in the Lao region is expected to help further improve harvesting efficiency. Cost savings and peak season price increases can all be expected, and the company's gross margin level is expected to continue to improve.
Accelerate the expansion of new projects. According to the company's quarterly report for '24, the company plans two phases of the Nanning household paper project, with a total production capacity of 300,000 tons. Each phase will build 4 household paper production lines. The first phase is expected to be put into operation in the fourth quarter of '24. In addition, the Nanning Forest Pulp and Paper Integrated Phase II project is expected to build a production line with an annual output of 400,000 tons of specialty paper, 350,000 tons of bleached chemical wood pulp, and 150,000 tons of mechanical wood pulp, with a total investment of no more than 7 billion yuan. The commissioning of the project is expected to continuously optimize the company's product structure and effectively expand the company's sales channels in the southern market.
Profit forecasting and investment advice. The company's three bases in Laos, Shandong, and Nanning continue to collaborate. In the short term, they are optimistic about the transmission of peak season price increases, and in the long term, they are optimistic about steady woodland cultivation in Laos to continue to amplify the company's integrated advantages of forest pulp and paper. EPS is expected to be 1.3/1.6/1.8 yuan/share in 24-26. Reference industry comparable companies give the company a reasonable valuation of 12xPE in 24, corresponding to a reasonable value of 16.0 yuan/share, maintaining a “buy” rating.
Risk warning. Prices of raw materials fluctuated, project commissioning fell short of expectations, and domestic and foreign demand declined.