Matters:
The company released the 2023 Annual Report and the 2024 First Quarter Report. In '23, the company achieved revenue of 8.55 billion yuan, +10.5% year on year; net profit to mother of 660 million yuan, -6.5% year on year; deducted non-net profit of 590 million yuan, +6.8% year over year. In 24Q1, the company achieved revenue of 2.21 billion yuan, +20.2% year on year; net profit to mother of 270 million yuan, +120.1% year over year; deducted non-net profit of 240 million yuan, +106.0% year on year.
Commentary:
Demand for 23H2 improved markedly as volume growth drove revenue growth. Raw material prices were high in the first half of '23, and both supply and demand in the market were under pressure. Production capacity was released in the second half of the year combined with cost improvements, and profit levels continued to pick up. 1) By product, in 23 years, the daily consumption/food and medical/commercial printing/tobacco industry support/electrical and industrial paper series achieved revenue of 41.1/17.3/7.1/8.1/680 million yuan, +15.5%/+14.6%/-8.0%/+0.8%/+17.9%; sales volume 46.6/23.0/9.5/9.2/6.3 million tons, +19.3%/+49.0%/-3.0%/basically flat/+22.2%; corresponding tonnage price YoY ratio -3.2%/-23.1% /- 5.1%/+0.8%/-3.5% 2) Looking at the subregions, domestic/export sales revenue in 23 years was 7.53/570 million yuan, +11.2%/-5.0% year-on-year. Domestic sales revenue increased steadily, while export sales successfully deployed global markets such as Europe, Southeast Asia, and the Middle East.
The reduction in raw material costs led to an increase in profits, and the cost rate remained stable. 1) In '23, the company's annual gross margin increased slightly by 0.1 pcts to 11.6%; among them, 23Q4 achieved a gross profit margin of 18.1%, +9.1 pcts year over year, and +8.7 pcts month-on-month, or mainly due to the decline in raw material costs in the second half of '23, compounded by a recovery in demand, and the release of new production capacity led to a significant increase in profitability. On the expense side, the company achieved a sales/management/finance expense ratio of 0.4%/1.7%/2.1%, compared with +0.04/+0.1/+1.3pcts, which remained stable, comprehensively driving the company's net interest rate to mother of -1.4pcts to 7.8%. 2) In 24Q1, the company achieved a gross profit margin of 18.0%, +8.0 pcts year on year, which was basically the same; the sales/management/financial expense ratios for the period were 0.2%/1.6%/2.5%, respectively, and -0.1/-0.2/+1.5pcts year over year. Among them, the increase in the financial expense ratio was mainly due to the increase in loan interest and the impact of exchange earnings in the same period last year. Taken together, the company achieved a net profit margin of 12.2%, +5.5 pcts compared to the previous year.
The expansion of production capacity has enabled the integration of forest pulp and paper, and the cost advantage is expected to be further strengthened. As of December 31, '23, the company has an annual production capacity of 1.6 million tons of specialty paper and paper products, and has production capacity for the entire industry chain, including woodland, chemicals, pulping, energy, logistics, raw paper and paper products. The breadth and depth of the industry layout are relatively perfect. At the beginning of '24, the Hubei project took the lead in ignition and trial operation; the Guangxi project will also be put into operation in mid-2024. It is expected that with the release of production capacity, the company's market share and cost advantage are expected to increase further.
Investment advice: The company is a leader in the specialty paper industry. The product system is diversified, and the integrated strategic layout of forest pulp and paper is long-term. With the subsequent release of production capacity, the company's performance may be further enhanced. We expect 24/25/26 profit of 10.85/14.07/1,698 billion yuan, corresponding PE is 13/10/8X. Referring to the absolute valuation method, the target price was 21.7 yuan/share, and the “recommended” rating was maintained.
Risk warning: The decline in pulp prices falls short of expectations, market competition intensifies, downstream demand recovery falls short of expectations, etc.