Company releases 2024 semi-annual report

24Q2 revenue was 1.7 billion, +7.7% YoY; Net Profit to Mother 0.1 billion, +457.7% YoY; Net Profit before Non-return to Mother was 0.09 billion, +626.4% YoY;

24H1 revenue was 3.43 billion, +20.8% year-on-year; net profit of 0.23 billion yuan, net profit of non-return mother was 0.22 billion. Compared with the same period of the previous year, the main reasons were: 1) production capacity climbed and new production capacity was put into the market, and operating income increased; 2) homemade machine pulp was put into operation. As of 24H1, the balance between food white cardboard and cultural pulp paper was basically achieved, which had a certain cost saving effect; 3) the price of wood pulp, the main raw material, decreased compared to the same period last year, and the company strengthened its management efforts to reduce costs and increase production and efficiency Costs declined year over year.

The revenue of 24H1 food packaging materials was 1.6 billion, +12.8% year-on-year, with a gross margin of 5.5%; the revenue of daily consumer materials/printed materials/industrial supporting materials was 1.18 billion/0.51 billion/0.14 billion, respectively, with gross margins of 23.3%/6.6%/10.2%, respectively.

24H1 domestic/overseas achieved revenue of 2.94 billion/0.49 billion respectively, +18.2%/+38.7%, respectively; gross margin was 11.1%/18%, respectively.

Production and sales are growing steadily, and the integration of pulp and paper is being promoted

24H1 completed machine paper production and sales of 0.581 million tons/0.566 million tons, +20.57%/+32.8% year-on-year. Currently, the company has three major papermaking bases in Quzhou, Jiangxi and Hubei, and the total production capacity of the company has exceeded 2.39 million tons of paper and pulp.

Among them, the company has built 15 paper production lines, with a total design capacity of 2.096 million tons. It is well equipped with convenient transportation and self-supply layout, which saves energy and logistics costs to a large extent, and has outstanding scale advantages. Among them, the food packaging material series/consumer materials series/publishing and printing materials series/industrial supporting material series products have production design capacity of 0.78 million tons/0.301 million tons/0.3 million tons/0.035 million tons, respectively.

In terms of pulp, the 0.3 million-ton machine pulp production line built by the company at its Jiangxi base was put into use in 2024Q1. As of 24H1, it had basically achieved the effect of perfect pulp and paper balance between food white cards and cultural paper. It not only increases the production of existing products and saves better cost and space, but also provides a strong raw material guarantee for the optimization and adjustment of the company's product structure in the future.

Raw material dividends have been shown, and profitability has increased year-on-year

24Q2 gross profit margin was 11%, +4.5pct year on year; sales/management/R&D/finance expense ratios were 0.2%/1.4%/1.6%/1.6%, respectively, -0.1pct/+0.3pct/+0.2pct; net profit margin 5.8%, year-on-year +4.7pct.

The 24H1 pulp price is still high, but compared to the same period in '22 and '23, the food card supply side faced a pulse-supply capacity release. Prices may be under some pressure in '24, and gross margin in Q2 declined month-on-month and increased year-on-year. The company expects low upward pressure on raw material prices in Q24, production capacity will continue to be released, the economy will recover steadily, and industry concentration will further increase, or gain more profit margin.

Lower profit forecasts and maintain “buy” ratings

The company's production capacity has steadily increased, and the integrated results of pulp and paper are beginning to show; according to the mid-term report for '24, and considering that there is still upward pressure on raw materials in Q3, we adjusted the profit forecast. Net profit to mother for 24-26 is 0.5/0.66/0.81 billion yuan (previous value 0.56/0.72/0.85 billion yuan), respectively, and the corresponding PE is 9/7/6X, respectively.

Risk warning: raw material costs are rising; new production capacity investment falls short of expectations; downstream demand recovery falls short of expectations; industry competition intensifies, etc.