Core views:

The company released the 24H1 semi-annual report. According to Wind, 24H1 achieved revenue of 3.431 billion yuan, +20.76% year over year, and realized net profit of 0.232 billion yuan, or +2013.39%; of these, 24Q2 achieved revenue of 1.705 billion yuan, +7.71% year over year, and realized net profit to mother of 0.099 billion yuan, +457.68% year over year, in line with expectations.

24Q2 profitability is temporarily under pressure. According to Wind, 24Q2 achieved a gross profit margin of 11.24%, +4.49 pcts year over month and -1.72 pcts month on month; achieved a net profit margin of 5.84%, +4.72 pcts year on year, and -1.98 pcts month on month. 24Q2 is expected to put pressure on the price of terminal food cards. At the same time, the impact of high-priced pulp will begin to show, and gross margin will weaken slightly from month to month. The company is expected to gradually improve profits of 24H2 tons through strategies such as price increases during the peak season, gradual commissioning of homemade machine pulp, and strengthening cost control.

Production and sales of core products are growing steadily. According to the company's 24H1 semi-annual report, the country's machined paper and paperboard production from January to June '24 was +11.8%. The company achieved machine-paper production of 0.5808 million tons, +20.57% over the same period, and sales volume of 0.5661 million tons, or +32.82% year-on-year. The production and sales growth rate was faster than the industry. By product, food wrapping/consumer materials (including glassine paper, digital transfer, drawing paper, etc.) /publishing and printing materials/industrial supporting materials achieved a total production capacity of 78/0.301/0.3/0.035 million tons during the reporting period. The products are diverse, supporting subsequent growth.

The integration of pulp and paper continues to advance, and new production capacity is gradually being released. As of 24H1, the company has built 15 production lines, with a total production capacity of 2.096 million tons of design paper. The scale advantage is obvious. In terms of pulp, the 0.3 million-ton pulp production line at the Jiangxi base was put into operation in 24Q1. Our own pulp line helped the company smooth the industry cycle and continue to reduce costs and expenses.

Profit forecasting and investment advice. The company has entered a new stage of integrated pulp and paper development: the three bases of Quzhou, Jiangxi and Hubei continue to collaborate, and the company continues to save costs and guarantee raw materials to strengthen its core competitiveness.

The company is expected to have a net profit of 0.54/0.71/0.84 billion yuan in 24-26 years. Referring to comparable companies, it will be given 13 times PE over 24 years, corresponding to a reasonable value of 17.47 yuan/share, maintaining a “buy” rating.

Risk warning. The economy is declining, demand falls short of expectations, raw material prices fluctuate, and industry competition intensifies.