Brief performance review

On August 28, the company released the 2024 semi-annual report. 24H1 achieved revenue of 20.52 billion yuan, net profit of 1.758 billion yuan, net profit of 1.758 billion yuan, +40.49% year over year; 2402 revenue of 10.34 billion yuan, +8.41% year over year, net profit to mother 0.8 billion yuan, or 16.9%/-16.1% year over month, after deducting 0.86 billion yuan year-on-year, year-on-month +30.0%/-9.2% Management analysis

20. The cost of pulp has increased, and the price of cultural paper has declined somewhat after rising during the peak season. Judging from the gross profit structure, cultural paper, box paper, and dissolved pulp together form the three main sources of gross profit. The share of 24H1 gross profit contributions was 45.5%, 21.0%, and 10.3%, respectively, +2.7/+1.5/-0.6 pct. 2402 The average market price of inner plate broadleaf pulp/coated paper/double adhesive paper/box board/dissolved pulp was +8.5% month-on-month/flat/-0.3%-2.8%/+3.2%. 1) Cultural paper: Since March, the price of pulp has increased and the price of cultural paper has been implemented under peak season catalysis. Since May, due to weak downstream demand, paper prices have entered the platform period; 2) Box board paper: Despite weak downstream demand, the company's box board profitability is superior to the industry due to the high-end product structure and the addition of domestic pulp fiber.

24H1 gross profit margin 17.57% (+2.8pct), with uncoated cultural paper/box board/dissolved pulp gross margin 18.0%/14.6%/21.0% (+2.4/+4.7pct). Q2 gross profit margin 17.16% (YoY +1.0/-0.8pct), 02 net profit margin 7.79% (YoY +0.6/-1.6pct), with Q2 non-current asset disposal losses of 0.087 billion yuan.

The price of cultural paper has gradually increased as it enters the peak season, and the trend of 4Qt profit recovery is clear. As cultural paper and box board paper gradually transition into the traditional peak season in September, it is expected to gradually rise after cultural paper prices fall back in the early stages. Against the backdrop of declining pulp prices, along with the consumption of stored pulp, 40 pulp costs are expected to decrease, driving a gradual recovery of profits. Currently, the average market price of broadleaf pulp/steel paper/double adhesive paper/box board/dissolved pulp is the same as -10.8%/-1.7%/-8.1%/-1.5%/at the bottom of the 20th.

The layout of diversified paper types has stabilized and fluctuated. The Nanning Phase II project expanded the special paper/pulp layout, and growth momentum is sufficient. At the end of 2023, the total production capacity of the company's paper+package exceeded 12 million tons, and the 0.3 million ton tissue project is expected to be put into operation; in addition, according to the company's announcement, the Nanning Phase II project will build an annual output of 0.4 million tons of specialty paper, 0.35 million tons of bleaching chemical packaging, and 0.15 million tons of mechanical wood pulp production line. The “three major bases” in Shandong, Guangxi and Laos have entered a new stage of comprehensive collaborative development; the company continues to extend and expand the entire integrated forest pulp and paper industry chain, continuously improving the core competitiveness of Sun Paper's industrial chain.

Profit Forecasts, Valuations, and Ratings

We expect the company's net profit to be 3.4, 3.89, and 4.31 billion yuan respectively in 24-26. The current stock price corresponds to PE of 10/9/8X. Considering that Sun Paper is a leading domestic paper manufacturer, the company's integrated pulp and paper is expected to significantly reduce its cyclical characteristics and “buy” rating.

Risk warning

The risk that the price of paper products will fall short of expectations due to downstream demand falling short of expectations; the risk that the progress of granting additional production capacity will not meet expectations; and the risk of large fluctuations in raw material prices.