Matters:
The company issued an annual report and a quarterly report announcement: 2023 revenue of 15.22 billion yuan, -7.0% year on year, and back to mother/withheld from mother of 1,44/1.49 billion yuan, -3.3%/-1.4% year on year. 24Q1 revenue was 3.48 billion yuan, +19.4% year over year, and 22/240 million yuan attributable to mother/withheld from mother, +20.6%/+54.3% year over year. The company plans to pay a total dividend of 870 million in 2023 (total annual report+interim report), accounting for 60.3% of net profit attributable to mother.
Commentary:
Downstream demand is under pressure to drag down revenue, and the overseas layout is seeking the long term. (1) By product, the company achieved revenue of 110.4/26.1/1.06 billion yuan in 2023, respectively, of 110.4/26.1/1.06 billion yuan, or -6.6%/-7.9%/-4.7% compared with the same period last year, or mainly due to weak downstream demand and cigarette pack revisions. Looking ahead to 24, 3C customer demand will improve marginally; cigarette packs and wine bag products are deeply tied to core customers, or share expansion with industry pattern optimization and new customer expansion; the eco-friendly packaging business has successfully introduced many major European and American customers in 23 years, and it is expected that in the future, it will expand from an environmentally friendly packaging business to an environmentally friendly non-packaging business, and continue to contribute to increased performance. (2) Looking at the subregion, the company achieved domestic and foreign revenue of 11.50/ 3.73 billion yuan respectively in 2023, -12.5%/+15.4% year-on-year, or mainly driven by rising production capacity in Vietnam and Malaysia factories. In the future, the company still plans to speed up production capacity investment in overseas markets, improve the global supply network, and improve overseas manufacturing capabilities.
Gross margin improved markedly, and expenses rose steadily during the period. 1) In '23, improving raw material costs combined with cost reduction and efficiency on the production side, and the company achieved a gross profit margin of 26.2%, +2.5pcts compared to the previous year. On the cost side, the company achieved a sales/management/R&D/finance expense ratio of 2.7%/6.4%/4.6%/0.2%. Compared with +0.3/+0.9/+0.5/+0.3 pcts, the increase in the management fee ratio was mainly affected by the increase in business hospitality, depreciation and amortization, and share payments during the period. Taken together, the company achieved a net profit margin of 9.4%, +0.4pcts year-on-year. 2) In 24Q1, the company achieved a gross profit margin of 22.1%, -1.6 pcts/month-on-month -6.1 pcts, or mainly due to the recent rise in pulp prices. On the cost side, the company achieved a sales/management/R&D/finance expense ratio of 2.7%/6.9%/4.6%/-0.3%, compared to +0.1/-0.5/-2.6 pcts. The decrease in financial expenses ratio or the increase in exchange earnings was mainly due to the appreciation of the US dollar. During the period, the company achieved a net interest rate of 6.3% to mother, a slight increase of 0.1 pcts.
Supply barriers continue to strengthen, and potential customers go hand in hand. On the supply side, the company continues to improve its global supply network and has established 7 production sites in Vietnam, India, Indonesia, Thailand and Malaysia. In the future, the company will also further accelerate the construction of smart factories, reduce costs and increase efficiency to improve profitability, and supply-side barriers will continue to strengthen. We are optimistic about the company's market share increase for a long time. In terms of customer development, the company will implement the “one industry, one policy” differentiated brand promotion strategy, and explore existing customer potential through “one customer, one policy”, focusing on breaking through new customers. Eco-friendly packaging products are expected to achieve rapid growth at a low base.
Investment advice: The company is a leader in the paper packaging industry, has a stable customer structure, a global production capacity layout, and high supply-side barriers. As downstream demand picks up, we are optimistic about the growth of the company's performance for a long time. Therefore, the company's net profit for 2024-2026 is estimated to be 17.4/19.9/2.23 billion (the value was 18.2/2.18 billion before 24/25), corresponding to the current share price PE 15/13/11 times. Using the DCF valuation method, the company was given a target price of 32.0 yuan/share in 2024, corresponding to 17 times PE in 2024, maintaining the “recommended” rating.
Risk warning: Raw material costs fluctuate greatly, market competition intensified, etc.