Performance summary: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 15.22 billion yuan, -7% year on year; realized net profit of 1.44 billion yuan, -3.3% year on year; realized deducted non-net profit of 1.49 billion yuan, -1.4% year on year. Looking at a single quarter, 2023Q4 achieved revenue of 4.42 billion yuan, +2.1% year on year; realized net profit of 450 million yuan, -3.4% year over year; realized net profit of 460 million yuan after deduction, +4.5% year on year. 2024Q1 achieved revenue of 3.48 billion yuan, +19.4% year on year; realized net profit of 220 million yuan, +20.6% year on year; realized net profit of 240 million yuan after deduction, +54.3% year on year. Profitability improved year by year. In 2023, the company accumulated dividends of 870 million yuan, with a dividend payment rate of over 60%.

Improved gross margin and optimized cash flow. In 2023, the company's overall gross margin was 26.2%, +2.5pp; 2023Q4 gross margin was 28.1%, +1.9pp year on year, benefiting from lower raw material prices and improved gross margin.

By product, the gross margin of the company's fine paper packaging/packaging ancillary products/environmentally friendly paper and plastic products was 26.7% (+2.7pp)/24.7% (+3.1pp)/22.2% (-0.9pp), respectively. In terms of cost ratio, the company's total expense ratio was 13.9%, +2pp year on year, and all expenses increased year on year. Among them, the sales expense ratio was 2.7%, +0.3pp year on year; management expense ratio was 6.4%, +0.9pp year on year, mainly due to increased depreciation and equity payments in the current period; the financial expense ratio was 0.2%, +0.3pp year on year; R&D expense ratio was 4.6%, year on year +0.5pp. Taken together, the company's net interest rate was 9.4%, +0.4pp year on year; 2023Q4 net interest rate was 10.3%, -0.6pp year on year. The company's net operating cash flow in 2023 was 3.67 billion, +40.2% year over year. Cash flow improved, mainly benefiting from the company's standardized supplier settlement period and increased bill settlement. The gross margin of 2024Q1 was 22.1%, -1.6pp; the total cost ratio was 13.9%, with sales/management/finance/R&D expense ratios +0.1pp/-2.6pp/-0.5pp, respectively. The decline in financial expenses was mainly due to an increase in exchange earnings due to the appreciation of the US dollar; the net margin of 2024Q1 was 6.3%, +0.1pp year-on-year, and profitability remained stable.

Revenue growth is temporarily pressured by downstream demand, and new customer orders are expected to be gradually released. By product, in 2023, the company achieved revenue of 11.04 billion yuan (-6.6%)/26.1 billion yuan (-7.9%)/1.06 billion yuan (-4.7%) of fine paper packaging/packaging ancillary products, respectively. Affected by weak downstream demand, the revenue of various categories was temporarily under pressure. In 2023, the number of the company's major customers increased rapidly, adding a number of major international customers in the fields of tobacco, environmentally friendly packaging, artificial intelligence, toys, food, etc., introducing new momentum into the company's continuous development. In terms of environmentally friendly packaging, the all-vegetable cellulose film products developed by the company received widespread attention from European industry media; a breakthrough was made in developing a new cigarette pack business, a number of core technical talents in engineering development and product design were introduced, and the cigarette pack service system was comprehensively upgraded. New cooperative relationships were established with major tobacco companies during the year, and new customer orders are expected to be gradually released.

The production capacity layout continues to improve, and smart factory construction is progressing comprehensively. By region, the company's domestic and export sales revenue in 2023 was 11.5 billion yuan (-12.5% YoY)/3.73 billion yuan (+15.4% YoY), respectively. In terms of production capacity, the new plant in Malaysia passed customer certification and was successfully put into operation, effectively supporting customer service needs in the local market; the construction of the new eco-friendly packaging plant in Vietnam was completed and successfully put into operation to protect the international development of the environmentally friendly packaging business. In 2023, the company accelerated smart factory construction on the basis of the full operation of Xuchang Yutong and Hefei Yutong smart factories; Suzhou Yutong smart factory completed, successfully tested, and efficiently met the needs of the East China market; Chengdu Yutong smart factory completed phase 1, creating a new model for smart consumer electronics and wine bags in the southwest market; construction of Jiujiang Yutong Smart Factory Phase I and Longgang Yutong Smart Factory Phase I; Kunshan Yutong intelligent warehousing and logistics systems began; other regions such as Luzhou Yutong, Chongqing Yutong, Yantai Yutong, Haikou Construction also continues The plan is in progress. Smart factories guarantee the continuity, stability and controllability of order delivery, and can meet the various order needs and quality requirements of major customers. In the medium to long term, it is expected to help the company increase customer satisfaction and order share.

Profit forecasting and investment advice. EPS is expected to be 1.85 yuan, 2.17 yuan, and 2.55 yuan respectively in 2024-2026, and the corresponding PE will be 14 times, 12 times, and 10 times, respectively, maintaining the “buy” rating.

Risk warning: risk of large fluctuations in raw material prices; risk of downstream customer growth falling short of expectations; risk of large exchange rate fluctuations.