Key points of investment:
The company announced its 2023 results, which are basically in line with expectations: 2023 revenue of 1,737 billion yuan, up 8.0% year on year; net profit to mother of 170 million yuan, up 0.4% year on year; after deducting non-net profit of 1.64 yuan, up 19.9% year on year. 23Q4 revenue was 500 million yuan, up 3.0% year on year; net profit to mother was 59 million yuan, up 11 million yuan year on year (up 23.1% year on year), after deducting non-net profit of 56 million yuan, up 23 million yuan year on year (up 69.4% year on year).
The company announced 24Q1 results, which were basically in line with expectations: 24Q1 achieved revenue of 437 million yuan, an increase of 1.0% year on year; net profit to mother was 0.53 million yuan, up 11 million yuan year on year (up 25.6% year on year), after deducting non-net profit of 44 million yuan, an increase of 03 billion yuan (up 6.5% year on year).
Revenue from liquid milk is growing at a steady rate, and revenue from non-carbonated soft drinks is starting relatively fast. In 2023, the company's revenue from sterile packaging for liquid milk/aseptic packaging of non-carbonated soft drinks was RMB 16.92/039 million, respectively, or 7.46%/45.32% year-on-year. The concentration of liquid milk customers is high. In 2023, Yili accounted for 72% of the company's revenue, and overall downstream sales were weak; however, the company's share of customers was basically stable. Yili's pillow bags were basically supplied by the company, and the share of new packaging types such as brick bags and masonry bags broke through in an orderly manner. The non-carbonated beverage industry itself has the logic of increasing the proportion of aseptic packaging applications. Combined, companies actively seek out customers, and their revenue performance is impressive.
Raw materials declined, and gross margin improved dramatically. The gross margin for 2023/24Q1 was 21.7%/22.5%, compared with +4.4pct/3.6pct, mainly due to a decline in raw material costs. The three main raw materials, raw paper, polyethylene, and aluminum foil, all declined markedly in 2023. Although the company set up a price adjustment mechanism to partially transfer raw material fluctuations, there were few actual price adjustments, so the raw material dividend was greatly reflected in the company's gross margin. Affected by the amortization of equity incentive expenses, the expense ratio increased year-on-year. The sales/management/R&D/finance expense rates in 2023 were 2.3%/5.3%/0.7%/-0.6%, respectively, +1.0/+2.1/+0.0/ -0.6pct; 24Q1 sales/management/R&D/finance expenses were 1.8%/6.7%/-0.4%, respectively, +0.2/+0.9/+0.0/+1.5pc.
According to the announcement, the amortization amount of equity incentive expenses in 2023 was 32.88 million yuan. After excluding this part of the impact, net profit returned to mother in 2023 still increased by double digits.
Aseptic packaging is the vanguard of domestically produced alternatives. After listing, production capacity was expanded, deeply tied to Yili, and provided a basic market for growth; the acquisition of Fenmei accelerated the domestic substitution process in the sterile packaging industry chain and optimized the price order of the industry. Considering that Fenmei's current 28% of shares are currently accounted for in the “Investment in Other Equity Instruments” account, Fenmei's performance contributed to “other comprehensive income” and did not contribute to the profit attributable to the mother. We lowered the 2024-2025 net profit forecast to 1.99/224 million yuan (previous value was 288/359 million yuan), adding 255 million yuan to the 2026 profit forecast, +16.8%/+13.9% over the same period 2024-2026. The PE corresponding to the current market value is 19/17/15 times. Taking into account market capitalization and the availability of profit forecasts, we selected 5 comparable companies in the paper packaging industry, with a 24-year PE average value of 28 times. Considering that subsequent Fenmei Packaging opens up revenue space once the merger and acquisition is implemented, the company's current valuation is cost-effective and maintains a “buy” rating!
Risk warning: The price of raw materials has risen sharply, the pace of domestic substitution by major customers falls short of expectations, price wars during the expansion of the industry, etc.