Event: The company announced results for the first quarter of 2023 and 2024. In 2023, the company achieved revenue of 8.553 billion yuan, +10.53% year on year; net profit to mother was 664 million yuan, -6.55% year over year; net profit after deducting non-return to mother was 595 million yuan, +6.81% year over year. In the first quarter of 2024, the company achieved revenue of 2,209 million yuan, +20.22% year over year; net profit to mother was 269 million yuan, +120.14% year over year; net profit after deducting non-return to mother was 237 million yuan, +105.97% year over year.
Increased production capacity and demand supported sales, and paper prices declined driven by pulp prices. In '23, the company's production paper revenue was 8.106 billion yuan, +9.90%; by product, household consumption series/food and medical packaging materials/tobacco industry support/business exchange and publishing printing materials/electrical and industrial materials product revenue was 4.107 billion/ 1,732 million/812 million/712 million/681 million yuan, +15%/+1%/-8%/+18% over the same period last year.
Looking at volume and price breakdown: (1) Product sales in '23 were 971,300 tons (+19.65%). Among them, sales of food and medical packaging materials were +63% year-on-year, driven by the launch of a new food card paper project in April 23; benefiting from downstream market development, sales of household consumer products, electrical and industrial materials were +19% and +22% year-on-year. (2) The price of 23 tons of paper was 8,345 yuan (-8.15%). On the one hand, the decline was affected by the product structure (the unit price of new food cards was relatively low), and on the other hand, the average price of some products declined due to the decline in the average price of wood pulp.
Costs gradually fell, and Q4 earnings rebounded. The company's gross profit margin in '23 was 11.62%, +0.11pct. ; On a quarterly basis, Q1-Q4 was 10.01%/8.25%/9.32%/18.05%, respectively. Q1-Q3 gross margin is under relative pressure. On the one hand, the cost decline may be lagging behind due to falling pulp prices and pressure on paper prices (affected by inventory factors); on the other hand, food cardboard may still be climbing in production capacity, and paper prices are weak. Q4 Gross margin rebounded sharply, or mainly benefited from falling costs, and paper prices rose supported by a recovery in pulp prices.
In addition, the company's investment income in '23 was 211 million yuan, +51.36% year-on-year, mainly from the joint venture Xiawang Paper (mainly engaged in decorative base paper). The increase may be due to the relatively strong price of decorative base paper and the fall in pulp costs, and the profit of Xiawang Paper has been released.
Profitability remained strong in 24Q1. In 24Q1, the company's revenue continued to increase year-on-year, with a slight month-on-month decline, judging that seasonal factors mainly affected sales; gross profit margin was 18.01%, +8.00pct year on year. , the basic high level remained flat compared to the previous month. The results of the company's 23Q4 price increase were evident. Profitability remained strong even as pulp prices picked up in the early stages and pulp costs were likely to increase.
Production and sales are expected to continue to grow at a high rate, and the implementation of price increases and the integration of pulp and paper will support profits. Looking forward to the future, (1) production and sales are expected to maintain rapid growth: some of the paper machines at the company's Hubei base were put into operation in 24Q1, and production capacity is expected to be implemented in Q4; the Guangxi base is expected to be put into operation from the end of 24 to the beginning of 25, laying the foundation for future production and sales growth. Currently, some types of paper are definitely in short supply, which helps digest the additional production capacity. (2) Profit margin pressure is manageable: Currently, pulp prices are still high, and pulp costs for paper companies may rise further in the short term. The company began product price adjustments in March '24, and the Q2 plan continues to implement the price increase strategy. The pressure on profit margins is expected to be relatively manageable. At the same time, the company plans to put into operation some pulp production lines at the new base within the year, which is conducive to reducing raw material costs. In the future, as all pulp production lines at the Hubei and Guangxi bases are put into operation, the increase in the self-sufficiency rate of wood pulp will bring the company a cost advantage and reduce the negative impact of rising pulp prices on profits. In addition, the company plans to increase sales of coated cardboard, and the profitability of food cards is expected to increase in the future.
Profit prediction and investment rating: As a leading specialty paper enterprise, the company has a competitive advantage in scale, and the market share of multiple segments under a diversified layout ranks among the highest in the industry. The company's new production capacity has been implemented in an orderly manner, and sales volume is expected to continue to grow with demand support. In the short term, product price increases are expected to be stable and profitable; in the medium to long term, the integration of pulp and paper creates a cost advantage. The company's net profit for 2024-2026 is estimated to be RMB 10.90, 12.59, and RMB 1,454 billion, with growth rates of +64.20%, +15.51%, and +15.44%, respectively. Currently, PE corresponding to the stock price is 13, 11, and 10 times, respectively. Maintain a “Recommended” rating.
Risk warning: Economic sentiment falls short of expectations, project commissioning progress falls short of expectations, and industry competition intensifies.