Key points of investment:
The company released its 2023 annual report and 2024 quarterly report, and its performance was in line with expectations. 1) 2023 Annual Report: Achieved revenue of 18.693 billion yuan in 2023, up 1.8% year on year; realized net profit of 182 million yuan, down 20.3% year on year; deducted non-net profit of 121 million yuan, down 45.4% year on year; 2023Q4 single quarter revenue of 5,015 million yuan, up 11% year on year, net profit of 275 million yuan, net profit to mother of 332 million yuan, turning a loss into a profit. 2) 2024 Quarterly Report: 2024Q1 achieved revenue of 4.398 billion yuan, an increase of 5.7% over the previous year; realized net profit of 101 million yuan and net profit of 95 million yuan after deducting non-net profit of 95 million yuan, turning a loss into a profit. A cash dividend of $0.2941 will be distributed for every 10 shares in 2023.
Lean management led to a marked increase in sales, and paper revenue increased slightly due to unit prices. In 2023, the company's paper business achieved revenue of 18.484 billion yuan, a year-on-year increase of 4.2%. Among them, white board/cultural paper/gypsum protective paper/box board paper achieved revenue of 119.41/42.45/4.66/1,832 billion yuan respectively, with year-on-year changes of -8.9%/+105.9%/-10.7%/-11.2%, respectively. Looking at the split price: 1) Sales volume: In 2023, white cardboard/cultural paper/gypsum protective paper/box board paper achieved sales volume of 279.69/84.05/11.62/541,600 tons, respectively, up 9.5%/124.9%/7.2% year-on-year, and cultural paper sales more than doubled, mainly due to PM8 450,000 tons of cultural paper production capacity put into operation in 2022, and the impact of PM6 conversion to cultural paper; there was no additional production capacity investment for white card paper, but the company still achieved a sales increase of nearly 10% 2 through improved production management;) Sales unit price: The average sales price of white paperboard/cultural paper/gypsum protective paper/ box board paper in 2023 was 4269/5051/4008/3382 yuan/ton, down 16.8%/8.4%/14.9%/17.1%, respectively. The average sales price of different types of paper declined. White cardboard and cultural paper were mainly affected by the drop in pulp prices. The prices of box board paper and gypsum protective paper were greatly affected by the impact of the industry's new production capacity and tariff relief on imported paper.
Benefiting from the fall in pulp prices and the increase in base paper prices in the second half of the year, earnings improved quarterly in 2023. 1) 2023: The company's gross margin in 2023 was 10.8%, down 0.8 pct year on year, of which single Q4 gross margin was 17.1%, up 19.4 pct year on year, up 1.3 pct month on month; the company's net profit margin in 2023 was 1.0%, down 0.3 pct year on year, of which single Q4 net margin was 5.5%, up 14.0 pct year on year and 0.4 pct month on month. The cost rate for the 2023 period was 10.2%, up 0.7 pct year on year. Among them, the cost rate for a single Q4 period was 10.1%, up 0.5 pct year on year, and 0.8 pct higher than month on month. According to Zhuochuang information, the average price of 2023Q4 white cardboard/double adhesive paper/box board paper was 4897/6114/3843 yuan/ton respectively, up 11.8%/10.0%/2.5% month-on-month respectively. Due to delays in the increase in wood pulp inventory costs, it is expected that the profit improvement of 2023Q4 white card paper and double adhesive tonne paper will improve significantly. At the end of 2023, the company's parent company and main subsidiary had a total of 5,431 employees, a year-on-year decrease of 859. The personnel structure was clearly optimized, which helped to further reduce subsequent labor costs. 2) 2024Q1:
2024Q1 gross margin was 13.3%, up 17.9 pct year on year, down 3.8 pct month on month; 2024Q1 net margin was 2.3%, up 14.2 pct year on year, down 3.2 pct month on month. The cost rate during 2024Q1 was 10.4%, down 0.5pct year on year and up 0.3pct month-on-month. Due to rising wood pulp costs and Spring Festival factors, 2024Q1 profits declined slightly month-on-month. By the end of 2024Q1, the company's inventory reached 3.293 billion yuan, an increase of 31.9% over the previous month, mainly for storing raw materials such as wood pulp. The cost side is expected to remain relatively stable in the future.
The increase in the proportion of differentiated products is expected to strengthen profitability. The Shandong base is actively promoting the continuous rise in production of differentiated products such as liquid packs, cigarette packs, food cards, copper cards, high-grade office paper, and coated paper. At the same time, it is also developing new types of paper products such as coated cow cards, natural colored paper cup paper, high-grade paper cups without water or corona, high-end dinner plate cards, eye protection paper, oriental book paper, and pure paper. The Jiangsu base is speeding up the alkali recycling project, thereby reducing sewage treatment costs and effectively alleviating production capacity bottlenecks. Currently, the Jiangsu base is actively promoting the 800,000-ton high-grade special cardboard expansion project. Future project products include:
The product structure of the Jiangsu base is expected to be optimized after the new project is put into operation, such as all-wood pulp zero-plastic paper cup paper, high-end social card paper, and high-end cigarette card paper.
The company is deeply involved in white card racing, empowered by the parent company's multi-dimensional APP production, development, sales and management, and efficiency continues to improve. The number of differentiated products at the Shandong base continues to increase. The Jiangsu base focuses on leading efficiency and promotes 800,000 tons of new production capacity, helping to enrich the product structure. Considering that white cardboard is currently being greatly impacted by the industry's new production capacity and the price trend is weak, we lowered the company's 2024-2025 net profit forecast to 6.83/977 billion yuan (previous value was 8.74/1,041 billion yuan) and added the 2026 forecast to 1,255 billion yuan, up 275.7%/42.9%/28.5% year-on-year respectively. The current stock price corresponding to 2024-2026 PE is 11.9/8.3/6.5X, respectively. The company's stock price in the previous period has been fully adjusted. Refer to comparable companies Sun Paper and Xianhe shares PE's valuation in 2024 is 12.8X, and the current market capitalization still has room to rise by 7.5%, maintaining the “gain” rating.
Risk warning: There is an oversupply of new production capacity for white cardboard, and the recovery in consumption and demand falls short of expectations.