Incident Overview

The company released the 2023 annual report and the 2024 quarterly report. In 2023, the company achieved revenue of 29.333 billion yuan, -13.76%; net profit to mother of 156 million yuan, turning a loss into a profit; net profit after deducting non-current assets of -298 million yuan (mainly a profit and loss of 209 million yuan from disposal of illiquid assets and a government subsidy of 227 million yuan included in current profit and loss), +87.61% year-on-year. The net cash flow from the company's operating activities was $3.167 billion, +1457.22% year-on-year, mainly due to an improvement in the profit situation in the current period compared to the previous year. Looking at a single quarter, Q4 2023 achieved revenue of 8.021 billion yuan, -6.35% year-on-year; realized net profit to mother of 273 million yuan, +111.80% year-on-year. In 2024, Q1 achieved revenue of 6.669 billion yuan, +5.00% year over year; net profit to mother of 0.39 million yuan, +111.45% year over year; net profit after deduction of -0.15 billion yuan (mainly government subsidies of 51 million yuan included in current profit and loss), +95.89% year over year; in addition, the company plans to distribute a cash dividend of 0.11 yuan (tax included) to all shareholders for every 10 shares, with a total dividend ratio of 30.4%.

Analytical judgment:

Revenue side: The gap between supply and demand is dragging down paper prices, and the advantages of industrial chain integration continue to increase.

The company's revenue in 2023 was 29.333 billion yuan, -13.76% year over year, mainly impacted by imported finished paper products (total imports of boxboard paper in 2023 were 5.324,600 tons, +48.15%; corrugated paper imports were 3.5911 million tons, +47.82% year over year) compounded by a slow recovery in downstream demand (actual domestic consumption of corrugated paper in 2023 was 58.78 million yuan, +9.3% year over year), and the average annual price of corrugated paper in 2023 was 2914 yuan/14 tons. tons, YoY- 18.7%; the average annual price of box board paper was 3,947 yuan/ton, -16.47% year-on-year, which had an obvious impact on the company's revenue side. By business, in 2023, the company's papermaking sector achieved revenue of 19.241 billion yuan, -11.75%. The company's raw paper production/sales volume was 6.7847 million tons/6.773 million tons, respectively, +10.35%/+9.97% year-on-year; the company's packaging sector achieved revenue of 7.080 billion yuan, -7.78% year-on-year. The trade sector achieved revenue of 21.24 billion yuan, or -42.77% year-on-year. Other businesses achieved revenue of $238 million, +21.76% year over year. According to Zhuochuang Consulting, the average price of 2024Q1 corrugated paper and box board paper was 2854.69/3859.20 yuan per ton, respectively, -8.7%/-10.1%, while the inventory and consumption of box board corrugated paper were -9.9%/+5.6% during the same period. Under the gradual improvement of industry inventory pressure, the steady recovery of terminals compounded the impact of the low base in the previous period, and the company's 24Q1 revenue side showed a slight recovery; at the same time, the company's production capacity expanded steadily, with Zhejiang Shanying's 770,000 ton paper making project and Jilin Yingshan Phase I The paper project was completed and put into operation, the company The current annual production capacity exceeds 8 million tons. It is estimated that after the 1.8 million ton production capacity of the Suzhou base under construction is completed, the company is expected to complete a strategic production capacity layout of nearly 10 million tons and continue to consolidate the company's leading position. Furthermore, through cooperation and self-construction, the company achieved an overseas supply of about 900,000 tons/year of recycled pulp and built 500,000 tons of bamboo and wood fiber production capacity by supporting various papermaking bases, optimizing production costs, and continuously improving the advantages of industrial chain integration.

Profit side: The decline in raw material prices led to an increase in gross margin.

In terms of profitability, the company's gross margin increased by 2.64pct to 9.87% year-on-year in 2023. We believe this is mainly due to the decline in the prices of imported wood pulp and domestic waste yellow board, and the reduction in pressure on the cost side. Net profit margin increased 7.27pct year over year to 0.35%. By product, the gross margins of the company's boxboard paper, corrugated paper, other base paper, paper products, recycled fiber, and other products were 7.04%, 9.54%, 6.58%, 13.40%, 10.67%, and 41.15%, respectively, +1.3pct, +2.48pct, +0.13pct, +2.69pct, +7.54pct, and +11.08pct, respectively. In Q1 2024, the company's gross margin increased by 2.16 pct to 9.88% year on year; net margin increased by 6.33 pct to 0.41% year on year. In terms of expenses, the company's expense ratio in 2023 was 12.57%, +1.75pct year on year; of these, the sales expense ratio was 1.30%, +0.14pct year on year; the management expense ratio was 4.83%, +0.15pct year on year; the financial expenses ratio was 3.59%, +1.05pct year on year, mainly due to increased interest expenses and exchange losses; and the R&D expense ratio was +0.41pct to 2.85% year over year. In Q1 2024, the company's cost rate for the period was 12.45%, -2.88pct; of these, the sales expense ratio was 1.26%, or -0.14pct year-on-year. The management fee rate was 4.42%, -1.69pct year-on-year. The financial expense ratio was 4.10%, -0.72pct year over year. The R&D cost rate was 2.67 percent, -0.33 pct year on year. Under cost reduction and efficiency, the company's profitability improved relatively well.

Investment advice

We are optimistic about Shanying International. As a leading enterprise in the corrugated board industry, the company will definitely benefit from economic recovery. In the medium to long term, with the commissioning of leading new projects in the industry and the withdrawal of old projects in the industry, we expect that industry concentration will continue to increase, the supply and demand relationship in the industry will become more balanced, and the bargaining power of leading companies in the industry will gradually increase. In the future, the company's expansion of production capacity and the advantages of an integrated industrial chain will continue to reduce costs and increase efficiency, and the company's competitiveness will be further strengthened. As downstream consumer demand is still slow, we adjusted our previous profit forecast, adjusted the company's 24-25 revenue forecast from 449.66/ 52,746 billion yuan to 32.087/35.434 billion yuan, EPS from 0.29/0.36 yuan to 0.15/0.23 yuan, adding 2026 revenue and EPS of 38.681 billion yuan and 0.28 yuan, corresponding to the closing price of 1.88 yuan/share on May 6, 2024, PE was 12/8/7 times, respectively, maintaining the company's “buy” rating.

Risk warning

1) Downstream demand falls short of expectations. 2) The company's production capacity investment progress fell short of expectations. 3) Imported paper continues to have an impact on the domestic market. 4) In July 2023, the company received a decision on administrative supervision measures from the Anhui Securities Regulatory Bureau.