A leading company in metal packaging, its performance continues to grow. The company is one of the leading domestic metal packaging enterprises. Its main products are beverage cans and food cans, with a complete product matrix and integrated service system. The company has accumulated well-known customers in various food and beverage segments such as beer, herbal tea, vegetable protein drinks, and energy drinks.

In 2019-2023, the company's operating income CAGR was 29.2%, and the net profit CAGR to mother was 58.0%, and the performance was good.

Two-piece cans: Domestic beer canning rates have increased, and demand in Southeast Asia has returned to growth. 1) Domestic: As downstream brewers pursue high-end production, cost reduction and efficiency, combined with environmental pressure factors, we predict that domestic demand for two-piece cans will reach 54 billion cans in 2025, and the CAGR is expected to reach about 2.3% in 2021-2025. At the same time, along with the accelerated integration of domestic leaders, the bargaining power of the industry is expected to increase in the future. 2) Southeast Asia: After 2020, the downstream market returned to a growth trend. Beer sales revenue rebounded to $22.2 billion in 2023, and soft drink sales revenue rebounded to $40.46 billion in 2022. Furthermore, since the overseas two-piece can market has a higher level of profitability, leading domestic companies are actively expanding their overseas production capacity. Currently, Baosteel, Shengxing, and COFCO already have overseas two-piece can production capacity layouts.

Three-piece cans: Energy drinks are released quickly, and plant-based protein drinks are growing steadily. The output/demand volume of China's three-piece can industry in 2022 was 31.05/30.53 billion cans respectively, which basically matched the growth in production and demand. Downstream market side: 1) Energy drinks: The size of China's energy drink market in 2022 was 145.9 billion yuan, and the CAGR in 2017-2022 was 11.0%, showing an overall rapid growth trend. Among them, Red Bull has the leading share of energy drinks, accounting for about 41.2% in 2022. Demand is expected to continue to grow as people's consumption habits improve.

2) Plant protein drinks: The market size of vegetable protein drinks in China in 2022 was 135.1 billion yuan, and the CAGR in 2017-2022 was 3.4%, showing an overall steady growth trend.

Deeply bind B-side customers and expand endogenous epitaxial production capacity. The company adopts a “close” business model, and its production capacity expansion is deeply tied to customer needs. 1) Two-piece cans: The company's downstream customers cover the fields of herbal tea, beer, and carbonated beverages. From 2019 to 2023, the company successively completed the acquisition of 6 Pacific Canning's two-piece can factories and carried out technical improvements and expansion of existing production capacity. The two-piece can production capacity grew rapidly; the company bound internationally renowned customers in Southeast Asia and invested in the construction of a factory in Cambodia in 2019 to officially launch overseas business. The CAGR reached 111.2% in 2020-2023, and the gross margin of the overseas business was about 20%, which is higher than the level of two-piece tanks in the domestic industry. 2) Three-piece cans: In terms of energy drinks, the company is deeply tied to Tencel Red Bull. In 2021-2023, it invested 1.06 billion yuan in China to build related production capacity, and invested an additional 1.3 billion yuan to build a factory in Guangxi in 2023. The company also simultaneously set up corresponding three-piece can manufacturing and filling production capacity in the city where the Tencel Red Bull production base is located. The three-piece can performance is expected to improve further. In terms of plant-based protein drinks, the company accounts for a stable share of the procurement share of Yangyuan Drinks and Chengde Lulu, and the corresponding three-tablet can revenue is expected to benefit from a steady increase in demand for plant-based protein drinks. As the company's overseas high-margin production capacity and three-piece can production capacity increase, the company's profit is expected to improve.

Profit forecast: In 2024-2026, the company's net profit to mother will be 0.48, 0.57, and 0.65 billion yuan, respectively, and the corresponding PE valuations are 9.6X, 8.1X, and 7.1X, respectively. Considering the industry's heavy capital expenditure, high overall debt ratio, and sufficient competition, we have adopted the EV/EBITDA valuation method. The company's EBITDA is expected to be 0.86, 1.05, and 1.16 billion yuan in 2024-2026, and the corresponding EV/EBITDA will be 6.6X, 4.7X, and 4.3X, respectively. The average EV/EBITDA valuation of comparable companies in 2024 was 8.6X. Considering the company's adequate production capacity layout and improved profit structure, it was covered for the first time, giving it a “buy” rating.

Risk warning: RMB exchange rate fluctuations, overseas demand recovery falling short of expectations, fluctuating raw material prices, falling short of expectations in production capacity, risk of measurement errors, and risk of data lag.