Key points of investment

Basic events

The company's 24H1 revenue was 20.524 billion yuan, +6.11% YoY; net profit to mother was 1.758 billion yuan, +40.49% YoY; 2024H1 net profit not attributable to mother was 1.817 billion yuan, +49.17% YoY. Q2 had revenue of 10.339 billion yuan (+8.41% YoY, +1.51%), net profit to mother of 0.802 billion yuan (YoY +16.94%, -16.13% month-on-month), net profit of 0.865 billion yuan (YoY +30.01%, -9.20% month-on-month). The performance was in line with expectations, of which Q2 did not lose 62.83 million yuan, mainly due to fixed asset clean-up in Nanning Park.

24H1 revenue increased year-on-year, and performance was steady

24H1's uncoated cultural paper/coated paper/ kraft box paper/ dissolved pulp/chemical pulp revenue was 70.18/21.20/52.02/1.773/0.829/0.79 billion yuan, accounting for 34.19%/10.33%/25.35%/8.64%/4.04%/3.85% of revenue, respectively; 24H1 company's uncoated cultural paper/coated paper/ kraft box paper/ dissolved pulp/chemical slurry gross margins were 17.99%/17.89%/ 14.57%/20.96%/23.21%/19.02%, +2.35pct/+5.72pct/+2.41pct/+4.73pct/+1.30pct/-1.52pct, respectively. Since mid-April, demand for terminals has been relatively lackluster, raw paper prices have shown a weakening trend, pulp costs have increased month-on-month, and Q2 profitability has declined slightly month-on-month.

Looking ahead to 24H2, the first price increase letter for cultural paper was issued at the end of August, and the price increase is expected to be transmitted. It is expected that Q3 costs will rise and the profit will drop month-on-month; Q4 uses Q3 low-price pulp, and profits will pick up month-on-month; the mid-autumn preparation of box board paper is lackluster, prices are weak, and the Q4 recovery is expected; the import supply of dissolved pulp is tight, and the Q3 boom is improving slightly.

Profit margin increased year on year, expense ratio was well controlled, debt ratio decreased (1) Profit margin: 24Q2 The company's gross sales margin was 17.16% (+1.03pct year on year, -0.84pct month on month), achieving a net profit margin of 7.76% (+0.57pct year over year, -1.63pct month on month), and profitability improved year on year, mainly due to lower raw material costs compared to the same period last year.

(2) Expense rate for the period: The cost rate for the 24Q2 period was 6.92% (-1.59pct), of which the sales expense ratio was 0.42% (year-on-year +0.04pct), the management+R&D expense ratio was 4.49% (year-on-year -0.95pct), and the financial expense ratio was 2.01% (-0.67pct year on year).

(3) Operational efficiency and asset quality: 24Q2, the company's accounts receivable were 2.973 billion yuan (year-on-year +0.211 billion yuan), accounts receivable turnover was 21.61 days (year-on-year -1.63 days), and total notes payable and accounts payable were 3.94 billion yuan (-1.145 billion yuan year over year). In terms of cash flow, 24Q2 net operating cash flow was 2.44 billion yuan (-0.001 billion yuan), inventory was 4.587 billion yuan (year-on-year +0.164 billion yuan), and inventory turnover days were 48.74 days (year-on-year -4.58 days). The balance ratio at the end of 24Q2 was 46.79% (-4.06pct year over year).

Optimizing the layout of the pulp and paper industry chain, the integrated ironing cycle of Lin pulp and paper fluctuated. At the end of 2023, the company's total pulp and paper production capacity exceeded 12 million tons. In terms of additional production capacity, Nanning Phase I household paper is expected to be tested in the third quarter of 2024, Nanning Phase II packaging paper (PM11/PM12) is expected to be tested in 2025Q4, and Nanning Phase II 10,000 ton specialty paper is being built continuously; Yanzhou Yandian 0.037 million ton special paper project is expected Production was tested in the first half of 2025, and subsequent construction of the 0.14 million-ton specialty paper phase II project is planned. As the company diversifies and the integrated pulp and paper product layout is more perfect, comprehensive and flexible deployment capabilities are better, and profit certainty is stronger in the midst of cycle fluctuations.

Profit forecasting and valuation

The company is a leading paper manufacturer integrating diverse types of paper and forest pulp and paper. The Lao base has deep barriers to wood chip resources. Revenue is expected to be 42.044/43.686/49.556 billion yuan in 24-26, respectively, +6.32%/+3.81%/+13.44% year over year; net profit to mother of 3.388/3.834/4.303 billion yuan, +9.79%/+13.17%/+12.24%, corresponding PE is 10X/9X/8X, respectively, maintaining a “buy” rating.

Risk warning

Downstream sentiment fluctuated, raw material prices fluctuated greatly, and prices of major products dropped sharply.