Key points of investment
Basic events
The company's 24Q1 revenue was 10.185 billion yuan (+3.87% YoY, -1.52% month-on-month), net profit to mother of 956 million yuan (YoY +69.04%, month-on-month +0.74%), net profit net of non-return mother was 952 million yuan (+72.22% YoY, +1.18% month-on-month). Q1 performance slightly exceeded expectations, with strong year-on-year growth.
24Q1 grew beautifully, and Q2 is expected to continue to be good. The integrated advantage of Lin Pulp and Paper highlights the peak season for textbook tenders since March and the price fluctuation in pulp prices has strengthened. According to Zhuochuang, the average price of double adhesive paper and coated paper in late March increased by 249 yuan/ton and 100 yuan/ton compared to the beginning of February. Considering that 24Q1 still consumes the inventory of low-cost raw materials in the early period, the profit of cultural paper is expected to increase steadily from month to month. Considering wood pulp inventory and transportation cycle, the Q2 pulp cost increase is expected to be manageable. Smoothing cost fluctuations, Q2 cultural paper is expected to be profitable Continued steady performance. Box board paper H1 is a traditional low demand season, with weak price and profit performance. H2 is expected to open a recovery channel. Demand for 24Q1 viscose fiber is strong, and the price of broadleaf pulp is stronger (there is a certain price linkage with dissolved pulp). At the end of March, the average price of dissolved pulp increased by 200 yuan/ton compared to the beginning of February. The cost advantage is expected to further deepen with the increase in wood chip production in 24Q1.
Profit margins and cash flow increased year-on-year, and expense ratios were well controlled
(1) Profit margin: 24Q1, the company achieved a gross profit margin of 17.99% (+4.48pct year on year, +0.87pct month on month) and a net profit margin of 9.39% (+3.62 pct year on year, +0.21pct month on month).
(2) Expense rate for the period 24Q1:6.77% (-0.32pct, month-on-month +0.85pct), of which the sales expense ratio was 0.43% (+0.06pct, month-on-month +0.00% pct), the management and R&D expenses ratio was 4.53% (-0.18pct, month-on-month +0.37pct), and the financial expense ratio was 1.82% (y-o-0.21pct, month-on-month +0.49pct).
(3) Operational efficiency and cash flow: 24Q1's accounts receivable of $3.36 billion (YoY +117 million yuan, month-on-month +1.406 billion yuan), receivables turnover days of 23.48 days (YoY -1.65 days, +4.42 days month-on-month), total accounts payable and notes amounted to $4.287 billion (YoY -551 million yuan, month-on-month -$528 million); inventory of 4.341 billion yuan (YoY -438 million yuan, month-on-month -233 million yuan). The number of inventory turnover days was 48.04 days (year-on-year - 5.65 days, month-on-month - 5.61 days). In terms of cash flow, net operating cash flow for 24Q1 was 586 million yuan (year-on-year -1,037 million yuan, month-on-month -391 million yuan). The net cash flow from operating activities decreased year-on-year, mainly due to the impact of cash recovery from the provision of labor services sold and an increase in the cost of receiving labor from purchased goods.
Deepen the integrated layout of forest pulp and paper, and make profits more certain
In 2023, the company's total production capacity of pulp and paper exceeded 12 million tons. The 350,000 ton PM3 cultural paper machine and 150,000 tons of household paper relocated from Beihai, Guangxi were successfully put into operation in early 23, the 200,000 ton PM1 special cultural paper machine in Nanning, Guangxi successfully produced paper in April 23, and the Nanning Phase I 1 million ton boxboard paper production line and 500,000 ton supporting color paste line were put into operation in 23Q3. In terms of additional production capacity in the next two years, the first phase of Nanning household paper is expected to be tested in 2024Q3, and Nanning (phase II) plans to build 400,000 tons of special paper, 350,000 tons of chemical pulp, and 150,000 tons of mechanical pulp, with a total investment of no more than 7 billion yuan. With the gradual commissioning of the pulp and paper production line at the Nanning base, the company's diversified and integrated pulp and paper product layout is more complete, comprehensive and flexible deployment capabilities are better, and profit certainty is stronger in the midst of cycle fluctuations.
Profit forecasting and valuation
The company is a leading paper manufacturer integrating diverse types of paper and forest pulp and paper. The Lao base has deep barriers to wood chip resources. Revenue is estimated at 453.76/482.42/52.803 billion yuan in 24-26, respectively, +14.8%/+6.3%/+9.5% year-on-year; net profit to mother of 37.39/42.75/4.595 billion yuan, +21.2%/+14.4%/+7.5% year-on-year. The corresponding PE is 12X/10X/10X, respectively, maintaining the “buy” rating.
Risk warning
Downstream sentiment fluctuated, raw material prices fluctuated greatly, and prices of major products dropped sharply.