Incident: Recently, the company issued intensive announcements, releasing multiple measures showing confidence.
1. “Notice on the 2024 “Improve Quality, Efficiency, and Heavy Return” Action Plan: 1) Focus on the main business, further focus on the development of the core industry chain; 2) Prepare debt conversion and dispose of overseas and non-main business assets in an orderly manner (June 21, 2023, Jiangdong Group signed a framework agreement to strategically take a stake in Shanying's wholly-owned subsidiary Xiang Heng Creative (51% share acquisition). After the acquisition is completed, Shanying will receive equity transfers & return of approximately 2 billion yuan in transactions); 3) The controlling shareholders actively fulfill their commitment to increase their holdings and focus on profit distribution policies (The dividend ratio reached in 2023 30.4%), buyback cancellation (146 million shares cancelled in 2023).
2. “Notice on the Board of Directors Proposing a Downward Amendment to the Exchange Prices of “Mountain Eagle Convertible Bonds” and “Eagle 19 Convertible Bonds”: The conversion prices of “Mountain Eagle Convertible Bonds”/“Eagle 19 Convertible Bonds” are currently 2.37 yuan/share, and the company proposes to revise the conversion prices downward.
3. “An indicative announcement on the intention of some directors, supervisors, and senior directors to purchase the company's convertible corporate bonds”: Five people, including the company's directors, vice presidents, financial officers, and directors, intend to purchase convertible bonds circulating in the secondary market, with a total capital of not less than RMB 2.3 million.
4. “Notice on Extending the Duration of the 2022 Core Employee Stock Ownership Plan”: The company extended the 2022 core employee shareholding plan (holding a total of 5.49 million shares of the company, accounting for 0.12%) for 12 months until August 1, 2025.
5. “Notice on Changing the Use of Shares Repurchased”: The company plans to change the use of 90.41 million shares repurchased in 2022 from the original plan to “sell using centralized bidding transactions” to “corporate bonds that can be converted into shares issued by the company.”
6. “Suggestive Notice Concerning the Controlling Shareholder's Intent to Purchase “Mountain Eagle Convertible Bonds”: The controlling shareholder Taisheng Industrial plans to purchase the company's “Mountain Eagle Convertible Bonds” in circulation in the secondary market until maturity at a price not higher than the face value of each sheet. The total amount of capital used is expected to be no less than RMB 200 million.
7. “Report on the Repurchase of Shares Using Centralized Bidding Transactions”: The company plans to repurchase shares of 357 to 7 million yuan (repurchase price not exceeding RMB 1.70 yuan/share) within 6 months through its own funds to convert corporate bonds issued by listed companies that can be converted into shares.
Resources were allocated optimally, strategic investments were actively introduced, and debt repayment pressure gradually eased. “Mountain Eagle Convertible Bonds” and “Eagle 19 Convertible Bonds” will expire in 2024M11 and 2025M12, respectively. The amount of unconverted shares of the latest convertible bonds is 22.46/1,844 billion yuan, respectively.
As of 2024Q1, the company's monetary capital was 5.185 billion yuan (restricted capital at the end of 2023 was 3.473 billion yuan). Currently, 1) Guangdong/Central China base: has successfully introduced strategic investment (equity financing of 1 billion yuan), 2) Subsidiary Nordic Paper:
It is expected to return about 980 million yuan, 3) Subsidiary Xiangheng Creative: Currently, Jiangdong Group has signed an acquisition framework agreement. After the acquisition is completed, Shanying will receive an equity transfer & return of about 2 billion yuan in transactions). The company's capital expenditure project for 2024 is mainly the Suzhou Shanying Paper Project, and the construction schedule will be carefully planned and capital expenditure arranged in an orderly manner.
Profit forecast: Currently, the company has a production capacity of more than 8 million tons. We expect the supply and demand relationship in the industry to ease, and the bottom of the tonnage profit is expected to pick up steadily (letters of price increases are frequent, and the bottom of boxboard/corrugated prices is picking up). The company's debt ratio in Q1 2024 was 71.4%, and the company's net operating cash flow in 2023 was $3.167 billion, or about 2.1 billion yuan after excluding financial expenses. We expect 2024H2 to be able to pay full debt payments through asset disposal. Due to rising costs and low paper prices, we lowered our profit forecast. We expect the company's net profit to be 600, 1, and 1.4 billion yuan respectively in 2024-2026, corresponding to PE of 10X, 6X, and 4X, maintaining a “buy” rating.
Risk warning: Downstream demand recovery falls short of expectations, packaging customer expansion falls short of expectations, and industry competition intensifies.