The company released the 2024 semi-annual report: 2024H1 achieved revenue of 3.454 billion yuan (YoY +0.2%), net profit due to mother 0.085 billion yuan (YoY +264.3%), net profit of 0.05 billion yuan (YoY +182.4%); 2024Q2 achieved revenue of 1.764 billion yuan (-3.2% YoY), net profit attributable to mother 0.042 billion yuan (YoY +171.7%), net profit not attributable to mother 0.013 Billions of yuan (+118.8% compared to the same period). Production and sales improved month-on-month, average prices declined slightly, costs rose, and profits were under slight pressure.

The special paper has excellent performance, and the white card is slightly pressurized. According to our estimates, the company's Q2 production and sales boom was about 0.217 million tons (+0.01 million tons compared to the previous month). The average price remained stable month-on-month. Among them, white card is stable due to supply and demand pressure and price market pressure (24Q2 white card average price -7.2% month-on-month); downstream demand for special paper is steady (24H1 national thermal paper production +6.1%, sales +7.2%), Q2 thermal transfer printing price increases are excellent, and the average price is expected to rise month-on-month; supply and demand for self-adhesive are stable, and the price market is expected to be stable. We expect Q2 cost pressure to remain and profit per ton to decline slightly. Looking forward to the future, the average price fluctuated downward in Q3, the storage cost of high-price slurry continued to rise, and the profit per ton continued to be under pressure; Q4 demand picked up & the storage cost of low-price slurry improved, and the profit per ton is expected to recover.

An integrated pulp and paper base was established, and the product field was expanded. The company has a white card production capacity of 0.6 million tons, specialty paper production capacity of 0.2 million tons, and a self-adhesive production capacity of 0.095 million tons. Benefiting from the comprehensive advantages of products, customers, scale, etc., the capacity utilization rate remains high all year round. Looking forward to the future, the 0.3 million ton high-grade coated white card paper machine has been successfully tested, the main equipment for the 0.06 million ton specialty paper project has been basically installed, bidding work has begun for the Zhanjiang medium paper 0.4 million ton pulp machine project, and an integrated pulp and paper base is beginning to be established. In addition, the company is actively expanding its business fields horizontally and exploring new materials fields with its own technology and R&D base. Currently, the special fiber composite pilot test line project has completed the signing of the main equipment contract, and it is expected to contribute significantly in the future.

Profitability improved year over year, and cost control was excellent. 2024Q2's gross margin was 9.3% (+6.7pct year over year, -4.7pct month-on-month) and net profit margin was 2.4% (year-on-year +5.6pct, month-on-month -0.1 pct). Profit changes were mainly due to fluctuations in wood pulp costs. In terms of cost performance, the cost rate during 2024Q2 was 9.2% (-0.6pct year on year), with sales/R&D/management/finance expense ratios of 0.8%/4.5%/3.2%/0.8% ((-0.32/-1.32/+0.01/+1.06pct), respectively, and cost control was stable.

Stable cash flow & operating capacity. 2024Q2's net operating cash flow was $0.294 billion (+0.05 billion yuan year over year); in terms of operating capacity, the number of days receivable, payable, and inventory turnover as of 2024Q2 was 48.15/48.28/73.39 days (+0.7/+6.0/+6.4 days), respectively.

Profit forecast: The company's net profit for 2024-2026 is expected to be 0.12, 0.15, and 0.22 billion yuan, respectively, corresponding to PE of 38.0X, 31.8X, and 21.3X, maintaining a “buy” rating. The reduction in profit forecasts is mainly due to increased supply and demand pressure in the white card industry, pressure on paper prices exceeding expectations; and increased fluctuations in raw wood pulp, weakening the company's cost stability.

Risk warning: Raw materials fluctuate, production capacity climbed less than expected, and competition for food wrapping paper intensified.