The company released its 2024 quarterly report

24Q1 achieved revenue of 1.96 billion yuan, a decrease of 22.3%; net profit due to mother of 80 million yuan, a decrease of 7.6%; net profit without return to mother of 40 million, a decrease of 164.8%. The net profit declined mainly due to: 1) weak market demand, intense domestic competition, and the sales price of the company's paper products decreased compared to the same period last year; 2) the garden ecology industry market was still sluggish, and the gross profit of the subsidiary Chengtong Kaisheng Ecological Construction Co., Ltd. declined year-on-year; 3) The company transferred 38.72% of Shuangyang Hi-Tech's shares and relinquished its priority subscription rights for capital increase.

Optimizing the industry landscape and making steady progress in the 24-year plan

Competition in leading markets has increased, the living space for small to medium and backward production capacity has shrunk, and the withdrawal of some production capacity can ease competitive pressure in the market. In the context of continuous optimization of the industry pattern, enterprises with advantages in the entire industry chain and raw material supply are expected to take the lead in breaking through with advantages in strategy, cost, products, and management. The company said domestic demand for cultural paper is expected to show a steady and definite growth trend; in addition, the steady progress of the “double carbon” policy and the “plastic ban” is conducive to boosting market demand for paper packaging. In 2024, the company plans to produce 1.036,800 tons of machine paper, achieving revenue of about 7.5 billion yuan.

National top-level design provides a fundamental guarantee for the sustainable development of the ecological industry. The company has significant advantages, and several major future trends in the industry are: (1) Technological innovation will bring new quality productivity to the industry. (2) Empowering new technologies will bring new momentum to the industry. (3) Biodiversity restoration and protection is the focus of the future industry. (4) Establishing a “carbon” mindset will be the industry's basic requirement for enterprises.

The company is one of the integrated leaders of Zhonglin pulp and paper among listed domestic paper companies. The advantages include ① cost advantage: the advantage of raw material supply and collection is prominent, accounting for about 50% of self-supplied pulp; relying on the Chinese paper industry collection platform, it has long-term cooperation with high-quality pulp mills around the world, with stable pulp supply and strong bargaining power. At the same time, the company has a pulp production line and uses all of its own pulp. Its own pulp accounts for more than 50% of the total pulp consumption, which can effectively control upstream raw material costs and obtain higher profit margins.

② Ecological advantages: Forestry carbon sink development has certain barriers, and early layout is conducive to seizing new opportunities:

Relying on the experience of the first carbon sink project in 2017 and its long-term forestry management experience, the company continues to thoroughly explore and promote methodologies and global development cooperation models such as forest carbon sinks, marine carbon sinks, farmland carbon sinks, and grassland carbon sinks. Chengtong's carbon sink plan will sign a total of 50 million mu of forestry carbon sink contracts by the end of 2025.

③ Technology research and development advantages: Adhere to high investment in scientific research and focus on product value transformation.

④ Location advantage: Excellent geographical environment, abundant supply of papermaking resources and low transportation costs.

Adjust profit forecasts to maintain “buy” ratings

The company plans to strengthen ecological pulp paper, expand production capacity, maintain the leading position of cultural paper; implement ecological agriculture and forestry, and build a leading forestry carbon sink enterprise and biological resource development and application platform. Referring to the quarterly report for the year 24 and the 2024 development plan, considering the impact of the company's sluggish garden business and the transfer of Shuangyang Hi-Tech on profits, we adjusted the profit forecast. The net profit for 24-26 is 3.8/50/ 60 million yuan, respectively (the previous value 24-25 years was 503/704 million yuan, respectively), and the corresponding PE is 23/18/15X, respectively.

Risk warning: Production capacity investment falls short of expectations, forestry carbon sink development falls short of expectations, downstream demand recovery falls short of expectations, etc.