Core views

The company achieved revenue of 3.431 billion yuan/ +20.8%, net profit to mother of 0.232 billion yuan/year-on-year profit; 24Q2 achieved revenue of 1.705 billion yuan/ +7.7%, and net profit of 0.099 billion yuan/ +457.7%. Looking at volume and price splitting, the company estimates that 24Q2 achieved sales volume of about 0.281 million tons/ +12.4%, estimated the average tonne sales price of 24Q2 was 6065 yuan/ -4.1% (+8 yuan month-on-month), tonne cost 5,383 yuan/ -8.7% (month-on-month +112 yuan), gross profit per ton 682 yuan/ +59.7% (-103 yuan month-on-month), net profit per ton was 354 yuan/ +401.0% (-120 yuan month-on-month). The 24Q2 segment paper segment had mixed ups and downs. The cost of wood pulp raw materials continued to rise, and the net profit per ton narrowed month-on-month.

In terms of production capacity, as of mid-24, the company's total paper production capacity was 2.096 million tons, an increase of 0.68 million tons over the beginning of the year. The total paper production capacity is expected to reach about 2.4 million tons by the end of 24, and capacity construction is accelerating. Looking ahead to the second half of the year, new production capacity will contribute to sales. Actual pulp costs will continue to rise in Q3 and the inflection point in Q4. We expect the profit trend per ton to decline first and then pick up.

occurrences

The company released its 2024 semi-annual report. 24H1 achieved revenue of 3.431 billion yuan/ +20.8%, net profit attributable to mother of 0.232 billion yuan/year-on-year turning loss into profit, and net profit not attributable to mother of 0.224 billion yuan/year-on-year turning loss into profit. Net cash flow from operating activities was 0.22 billion yuan/year over year; basic EPS was 0.58 yuan/share, year-on-year correction, and ROE weighted at 8.93% /+9.0 pct.

Looking at a single quarter, 24Q2 achieved revenue of 1.705 billion yuan/ +7.7%, net profit to mother 0.099 billion yuan/ +457.7%, net profit of non-return to mother 0.093 billion yuan/ +626.4%.

Brief review

The sales price of 24Q2 tons remained flat month-on-month, and rising raw material costs led to a month-on-month narrowing in profit per ton.

1) Volume and price split: 24H1 achieved sales volume of 0.566 million tons/ +32.8% of raw paper, estimated average price per ton of 6061 yuan/ -10.0%, gross profit of 734 yuan/ +106.4% per ton, net profit of 411 yuan/year on year. Looking at a single quarter, we estimate that the company achieved sales volume of about 0.281 million tons/ +12.4% in 24Q2. We estimate that the average tonne price in 24Q2 is 6065 yuan/ -4.1% (+8 yuan month-on-month), tonne cost is 5,383 yuan/ -8.7% (month-on-month +112 yuan), gross profit per ton 682 yuan/ +59.7% (-103 yuan month-on-month), net profit per ton is 354 yuan/ +401.0% (-120 yuan month-on-month).

2) Profitability: 24H1 company's gross margin was 12.10% /+6.83pct, and the net margin was 6.83% /+7.26pct. Looking at a single quarter, 2024Q2 gross margin was 11.24% /+4.49pct, and net margin was 5.84% /+4.72pct. There were mixed ups and downs in various paper segments in 24Q2. The price per ton was flat compared to 24Q1, while the cost of wood pulp raw materials gradually increased, so profitability declined slightly from month to month. The gross profit margin and net interest rate decreased by 1.72 pct and 1.98 pct, respectively, compared to 24Q1.

Production and sales increased year-on-year in the first half of the year, mainly due to food wrapping paper and cultural paper. ① By product: 24H1 achieved revenue of 1.599 billion yuan/ +12.8% of the food packaging material series (food white card), with a gross profit margin of 5.5%; the daily consumer materials series (including glassine paper, transfer printing paper, drawing paper) earned 1.176 billion yuan/ +10.5%, with a gross profit margin of 23.3%; the revenue of the publishing and printing materials series (specialty cultural paper) was 0.512 billion yuan/ +76.5%, mainly due to the conversion of box board paper to cultural paper at the Jiangxi base in the same period last year, affected part of the production volume and gross profit margin 5.59%; the industrial supporting materials series (stainless steel liner, CTP liner, glass partition paper, etc., from the newly acquired Wuzhou Te Paper Longyou factory) earned 0.137 billion yuan, with a gross profit margin of 10.2%. ② By region: 24H1 achieved domestic revenue of 2.944 billion yuan/ +18.2%, gross profit margin of 11.1%; overseas revenue of 0.487 billion yuan/ +38.7%, gross profit margin of 18.0%.

The first batch of production capacity at the Hubei base has been put into operation, and the rapid commissioning phase will begin in 24-25. As of 24H1, the company's total paper production capacity was 2.096 million tons, an increase of 0.68 million tons over the beginning of the year. This is a contribution to the two industrial wrapping paper and yarn tube paper production lines that were put into operation during the first phase of the Hubei base at the end of June. Looking forward to the future, it is expected that an industrial wrapping paper production line will be put into operation at the Hubei base and 1 digital transfer paper will be put into operation at the Jiangxi base. The company's paper production capacity is expected to reach 2.4 million tons by the end of 24, and a total of about 0.7 million tons of paper production capacity will be invested in 25 years. The three major bases in Zhejiang, Jiangxi and Hubei will develop collaboratively, and the production capacity will expand in an orderly manner. In terms of raw materials, 0.3 million tons of machine pulp from the Jiangxi base was officially put into use in early '24. It has almost achieved a self-balance between the use of white cards for food and cultural pulp and paper. Currently, production costs are basically the same as external purchase prices. It is expected that as the production line continues to climb and optimize, it is expected to contribute to cost savings.

Investment advice: Wuzhou Special Paper's 2024-2026 revenue is expected to be 7.572, 9.723, and 11.132 billion yuan, respectively, up 16.1%, 28.4%, and 14.5% year-on-year; net profit to mother is 0.46, 0.617, and 0.71 billion yuan, respectively, up 68.5%, 34.4%, and 15.0% year over year; corresponding P/E is 13.0x, 9.7x, and 8.4x, maintaining a “buy” rating.

Risk warning: Downstream demand falls short of expectations: As a leading domestic specialty paper enterprise, the company's main products include food cardboard, glassine paper, etc. Downstream demand will mainly affect the company's product sales, and at the same time, it will be difficult to support the sales price of finished paper during the rapid decline in pulp prices, which will ultimately adversely affect revenue and profit; risk of fluctuations in pulp prices: the company's wood pulp raw materials account for 50%-60% of the cost. Under wood pulp price fluctuations, if the company makes mistakes in judgment, it will raise the company's production costs and have a significant impact on the company's profit capacity construction; Less than expected: The company is in Hubei The construction of the Jiangxi base is being accelerated. If production capacity construction falls short of expectations due to capital, policy and other factors, it may affect the company's growth.