Core views

In 2023, the company's revenue was 8.553 billion yuan/ +10.5%, net profit attributable to mother was 664 million yuan/ -6.5%, net profit not attributable to mother was 595 million yuan/ +6.8%. 24Q1: The company's revenue was 2,209 million yuan/ +20.2%, net profit attributable to mother 269 million yuan/ +120.1%, net profit not returned to mother was 237 million yuan/ +106.0%. In terms of sales, the 24Q1 division sold about 245,000 tons/ +34.6%, of which about 25,000 tons of food cards, 200,000 tons of tissue paper, and Xia Wang's sales volume was 70,000 tons+ (which declined month-on-month due to machine commissioning). In terms of profit, benefiting from the reduction in wood pulp costs and price increases, the 24Q1 company's net profit per ton was 923 yuan/ +114.1% (+80 yuan month-on-month). Among them, the food card was close to break-even, the net profit for a ton of tissue paper was 1,028 yuan (+70 yuan month-on-month), and the net profit of Xia Wang tons was about 1,157 yuan, a slight improvement over the previous month. Looking ahead to 24, the company's new integrated pulp and paper production capacity will soon be launched, which may simultaneously usher in revenue growth and cost improvements.

occurrences

The company released its 2024 quarterly report: 24Q1 revenue of 2,209 million yuan/ +20.2%, net profit of 269 million yuan/ +120.1%, net profit of 237 million yuan/ +106.0%; net operating cash flow of 414 million yuan (23Q1 was -680 million yuan); basic EPS was 0.36 yuan/share, +123.5% year over year; ROE weighted 3.6% /+1.84pct.

The company released its 2023 annual report: the company's revenue in 2023 was 8.553 billion yuan/ +10.5%, net profit of 664 million yuan/ -6.5%, net profit not attributable to mother; net operating cash flow of 62 million yuan/ -14.1%, mainly due to increased procurement of raw materials; basic EPS was 0.94 yuan/share, a year-on-year change of -6.9%; ROE weighted 9.35% /-1.33pct.

The company plans to distribute a cash dividend of RMB 3.50 (tax included) to all shareholders for every 10 shares, with a cash dividend ratio of 37.22%.

Looking at a single quarter, 23Q4's revenue was 2,341 million yuan/ +5.1%, net profit attributable to mother was 282 million yuan/ +96.7%, after deducting net profit of 280 million yuan/ +196.0%.

Brief review

In 24Q1, the net profit of the division increased to about 923 yuan. Food cards were close to break-even, and Xia Wang's ton profit was about 1,157 yuan. 1) The company's gross margin in '23 was 11.6% /+0.11pct, and the net margin was 7.8% /-1.4pct. Sales, management, R&D, and financial expenses were 0.4% /+0.04pct, 1.7% /+0.11pct, 1.3% /-0.02pct, 2.1% /+1.25pct, respectively. The year-on-year increase in financial expenses was mainly affected by the increase in interest expenses. Looking at a single quarter, 23Q4 gross margin was 18.1% /+9.1pct, up 8.7pct month-on-month, net margin was 12.1% /+5.6pct, up 3.8pct month-on-month; 24Q1 gross margin was 18.0% /+8.0pct, net margin was 12.3% /+5.6pct, and profitability was basically stable month-on-month.

2) Looking at volume and price breakdown: The company's 23-year sales volume was 971,000 tons/ +19.7%, mainly due to the gradual release of the company's new food card and special paper production capacity. It is estimated that the average annual sales price is 8,806 yuan/ -7.6% (low price food cards affect product structure & raw material costs, leading to product price reduction), net profit per ton 683 yuan/ -21.9% (food card losses & low-priced raw materials were not used in large quantities until Q3). Excluding Xia Wang's investment income, the net profit of the department was 457 yuan/ -36.8%. The 24Q1 order and shipment were good, with sales volume of about 245,000 tons/ +34.6%. We estimate that the corresponding average tonne sales price was 9016 yuan/ -10.7%, and the net profit per ton was 1,097 yuan/ +63.5%. Excluding Xia Wang's investment income, the net profit per ton was 923 yuan/ +114.1%.

3) By category: ① Xia Wang decorative base paper achieved sales volume of about 360,000 tons+ in 23 years, with a year-on-year increase of about 13.5%, contributing 227 million yuan/ +77% in investment income. We estimate that Xia Wang's net profit is about 1204 yuan/ +57%, mainly due to the high popularity of decorative raw paper. At the same time, wood pulp costs have declined, and the net profit per ton has improved dramatically. 24Q1 Xiawang's sales volume is about 70,000 tons+ (the impact of equipment shutdown and commissioning decreased slightly), a slight increase over the previous month. ② The department's food cardboard production line gradually climbed. In September, it achieved sales volume of 105,700 tons, a loss of 63.6285 million yuan, and an estimated loss of about 602 yuan in food cards. Due to leading product quality, the company raised sales prices and stable raw material costs. The 23Q4 profit situation has improved dramatically. The net loss narrowed to about 163 yuan. The sales volume in 24Q1 was about 25,000 tons, and the net profit improved further month-on-month. ③ Tissue paper achieved sales volume of about 866,000 tons/ +6.6% in 23 years, estimated net profit of 578 yuan/ -20.0% per ton of tissue paper, 24Q1 achieved sales volume of 220,000 tons/ +21%, and net profit of 1,028 yuan per ton (+70 yuan compared to the previous month).

New production capacity has been released, and the integrated construction of forest pulp and paper is progressing smoothly. With the 23Q2 Changshan production base producing 300,000 tons of food card paper project and the Donggang production base PM29 and PM30 projects being put into operation one after another, the total production capacity of the company and Xia Wang reached 1.6 million tons+ at the end of 23. The first phase of the company's two integrated pulp and paper projects in Laibin, Guangxi and Shishou, Hubei is nearing completion. Among them, PM1 and PM2 of the Hubei project have been put into operation one after another in the first quarter of 2024, and the Guangxi project is also expected to gradually implement the commissioning plan in mid-2024. According to the plan, by the end of '24 to the beginning of '25, the Hubei base will add about 250,000 tons of paper and 200,000 tons of chemical pulp production capacity, while Guangxi will add about 55-600,000 tons of paper, 200,000 tons of chemical pulp, and 400,000 tons of chemical slurry. After the 70,000-ton production line was put into operation in '22, the current production capacity of Xia Wang is about 390,000 tons (Xianhe was foundry about 20,000 tons in '23), and the Hubei base will have an 80,000 ton new production line to produce decorative base paper. Considering production line replacement, it is expected that in '24, Xia Wang will add 40,000 tons of production capacity. With the introduction of pulp and paper production capacity at the two major bases, Xianhe gradually opened up the upstream and downstream industrial chain and moved towards the integration of Lin Pulp and Paper.

Investment suggestions: The 2024-2026 operating income of Xianhe Co., Ltd. is expected to be 10.9.5 billion yuan, 134.7 billion yuan, and 16.10 billion yuan, respectively; net profit to mother will be 10.4, 13.5, and 1.66 billion yuan, respectively, up 57.4%, 28.9%, and 23.1% year on year; corresponding P/E will be 13.3x, 10.3x, and 8.4x, maintaining a “buy” rating.

Risk warning: Downstream demand falls short of expectations: As a leading domestic specialty paper industry, downstream demand is mainly in the household, consumer, trade and other industries. Weak downstream demand will affect the company's product sales, and at the same time, it will be difficult to support product prices during the rapid decline in pulp prices, which will ultimately adversely affect revenue and profits; risk of fluctuating pulp prices: the company's wood pulp raw materials account for 50%-60% of the cost. Under fluctuations in wood pulp prices, if the company makes mistakes in judgment, it will raise the company's production costs and have a significant impact on profits; production capacity construction falls short of expectations: the company and new production capacity in Guangxi Gradual construction, affected by the economic environment, Affected by financial conditions, etc., production capacity construction falling short of expectations or failure to absorb new production capacity expectations will have an adverse impact on the company's revenue and profits.