Key points of investment:

The company's 2024 semi-annual performance forecast: 2024H1 expects the company to achieve net profit of 0.225-0.26 billion yuan, a year-on-year increase of 42.40%-64.55%; net profit after deduction is 0.215-0.25 billion yuan, an increase of 38.12%-60.61% year-on-year.

The company is mainly engaged in metal packaging business, and downstream customers are widely distributed. The company's main business is the R&D, design, production and sale of food and beverage packaging containers and the provision of beverage filling services. The main products are beverage cans and food cans, including three-piece cans, two-piece cans, etc., and related supporting services. The company has a wide range of customers, including well-known domestic food, beverage and beer brands, such as Yangyuan Drinks, Red Bull, Guangyao Wang Laoji, Yinlu Group, Chengde Lulu, Tsingtao Brewery, Budweiser, China Resources Snowflake, Starbucks, Magic Claw, Master Kong, Pepsi, Coca Cola, Rui Ao, Yanjing Beer, Dali Group, Carlsberg, Taiqi Foods, etc. In 2023, the company achieved operating income of 7.095 billion yuan, a year-on-year increase of 0.60%, and achieved net profit to mother of 0.333 billion yuan, an increase of 59.25% over the previous year.

1) Three-piece can business: The company's three-piece can products are used to package various beverage products, including vegetable protein drinks, energy drinks, rice porridge, food cans, etc. The main raw material is tinplate. Demand from the company's downstream beverage customers recovered in 2023, and sales of three-piece cans achieved double-digit growth throughout the year. In terms of production capacity, the company continued to optimize the three-piece tank production capacity layout. In the fourth quarter of 2023, it invested in the construction of a production base in Neijiang to support strategic customers; in August 2024, in order to actively expand the company's business in Southeast Asia and make full use of local resources to enhance the company's market competitiveness and profitability, the company's wholly-owned subsidiary Hong Kong Shengxing plans to cooperate with Mr. Aminoto and Mr. Lie Soen Boen jointly set up a subsidiary “Indonesia Shengxing” as a project company in Indonesia and invested in the construction of an Indonesian food tank project. The total investment of the project was RMB 48.092 million.

2) Two-piece cans: The company's related products are mainly used for packaging beer, herbal tea, cola, etc., and the base material is mainly aluminum. From an industry perspective, demand growth in China's two-piece can industry slowed in 2023, and there was a phased surplus in production capacity on the supply side; the company's division actively responded to the unfavorable situation of competition, steadily promoted product innovation and customer expansion, and domestic two-piece can sales achieved single-digit growth in 2023. At the same time, the company's division continued to vigorously promote overseas business, and the overseas business achieved good growth. In 2023, the company's overseas revenue was 0.763 billion yuan, an increase of 5.55% over the previous year, and the gross margin of the business reached 19.31%, which is significantly higher than the domestic business.

In addition, the company's production capacity layout related to two-piece cans has been further improved. In 2023, the company's two-piece tank division completed the merger and acquisition of Beijing Pacific, the Phnom Penh Shengxing Phase III project was successfully completed, and the domestic Ya'an plant also entered commercial production, laying a good foundation for subsequent two-piece business growth.

Profit forecast and rating: We expect the company's net profit for 24-26 to be 0.454, 0.502, and 0.543 billion yuan respectively, up 36.2%, 10.6%, and 8.3% year-on-year. The current closing price corresponds to the 24-25 PE of 9.78 and 8.84 times. Refer to the comparable company giving the company a 14-15 times PE valuation in 2024, corresponding to a reasonable value range of 6.50 to 6.97 yuan, giving a “superior to the market” rating.

Risk warning: Raw material prices fluctuated beyond expectations, new business development fell short of expectations, and the capacity expansion process fell short of expectations.