Mountain Eagle International released its 2024 mid-year performance forecast. According to the announcement, net profit from 2024H1 was 0.9 to 0.135 billion yuan/loss turned into profit, and net profit after deducting non-return to mother was -1 to -0.14 billion yuan/loss narrowing. Net profit from single Q2 in 2024 was 0.51 to 0.096 billion yuan, up -27% to +37% year-on-year, and net profit after deducting non-return to mother was -1.25 to -0.085 billion yuan/loss increase.

2024Q2 capacity utilization increased, and overall profit increased. In terms of revenue: The average price of a ton of 2024Q2 boxboard/corrugated paper was 3196/2656 yuan, down 1.28%/5.03% from the previous month, but considering that 24Q1 Mountain Eagle's capacity utilization rate was low (affected by the Spring Festival), and the operating rate gradually increased in 24Q2, we expect the company's revenue to increase sequentially in 2024Q2. Profit side: Downstream demand in the paper business declined month-on-month (the apparent consumption of corrugated board in April and May 2024 was 5.33/5.23 million tons, respectively, down 4%/2% from the previous month). The first half of the year was a low consumption season, and demand in the second quarter was still under pressure. However, against the backdrop of the company's increased capacity utilization, we expect the company's profit to rise to about 25 yuan/ton in 2024Q2; the profit of the packaging business is expected to remain stable. Cost aspect: According to Steel Union data, the average price of 2024Q2 waste was 1331.02 yuan/ton, a decrease of 6.87%/4.33% year-on-year, respectively.

The downgraded stock price traded space for time, and responded positively in multiple dimensions. On July 8, 2024, the company announced the downsizing of “Mountain Eagle Convertible Bonds” and “Eagle 19 Convertible Bonds”. The adjusted forward share price was 2.37 yuan/share, and the adjusted price was 2.32 yuan/share. We believe that the main purpose of this downgrade is to avoid resale. The company raised funds from multiple sources: 1. The disposal of Nordic Paper's shares is estimated at 1 billion yuan; 2. The packaging company sells 51% of shares at 1 billion yuan, while the packaging company returns 2 billion yuan of current loans from Shanying; 3. In early 2024, Caixin Jixiang Life increased capital by 0.25 billion yuan; a total of 4 billion+ cash repayment (total debt service of 4.1 billion yuan).

Other measures: 1. Repurchase treasury shares in 2022 to convert convertible bonds issued by the company; 2. Directors and supervisors invested 2.3 million yuan to purchase convertible bonds; 3. The 2022 core employee shareholding plan was extended by 12 months until August 1, 2025; 4. Invest 0.7 billion yuan to repurchase shares and spend an additional 0.2 billion yuan to repurchase bonds.

Investment proposal: The company promotes construction of projects under construction and optimizes the domestic regional production capacity layout. With the official commissioning of the first production line of the Zhejiang Shanying 0.77 million ton paper project in 2023 and the commissioning of the first 0.3 million ton corrugated paper and 0.1 million ton straw pulp project in Jilin Shanying, the company's domestic paper production capacity increased to about 8 million tons/year, further consolidating the company's leading position in the industry. As a domestic boxboard corrugated paper leader, it adheres to the strategy of industrial chain integration and steady expansion of production capacity. It is anticipated that the second half of 2024 will be accompanied by the peak consumption season in the second half of the year. Driven by scale and location advantages, the company's profit is expected to improve quarterly. We expect net profit to be 0.51/1.02/1.6 billion yuan in 2024-2026, corresponding PE is 13X/7X/4X, maintaining the “recommended” rating.

Risk warning: Downstream demand falls short of expectations, underlying stock fluctuations trigger resale, and asset disposal falls short of expectations.