Key points of investment

24H1 achieved revenue of 14.255 billion yuan (+3.69% year-on-year), net profit of 0.114 billion yuan (year-on-year correction), net profit of non-attributable net profit of -0.108 billion yuan, and non-operating income of 0.22 billion yuan. 24Q2 revenue was 7.586 billion yuan (YoY +2.56%), net profit attributable to mother was 0.074 billion yuan (YoY +6.13%), net profit not attributable to mother -0.093 billion yuan, Q2 non-revenue 0.17 billion, mainly government subsidies.

H1 The scale of production and sales has increased, and we look forward to a recovery in demand during the peak season

24H1's base paper/packaging sector achieved revenue of 9.555/3.292 billion yuan respectively, +9.40%/-3.71% year-on-year, gross margin 6.74%/12.51%, and +0.28pct/-0.26pct year-on-year. 24H1 raw cardboard block produced 3.4195 million tons, +13.59% year over year, sales volume 3.4643 million tons, +17.10% year over year, production and sales rate 101.31%. The packaging sector produces 0.987 billion square meters, sells 1.007 billion square meters, and the production and sales rate is 102.06%. According to Zhuochuang, the average price of the Q2 box board paper market was 3,655 yuan/ton (-7.35% YoY, -4.77% month-on-month), and the average price of corrugated paper was 2,645 yuan/ton (-7.11% YoY, -7.74% month-on-month). Demand recovered slowly, and the average market price fluctuated and declined. Demand for holiday stocking increased from the end of Q3 to Q4, and prices and profits are expected to rise slightly.

Multiple financing measures to actively pay, and repurchases maintain market confidence

The company actively raised capital through channels such as Nordic equity sales, state-owned subsidiary Xiangheng Creative Packaging, subsidiary equity financing, and non-main asset disposal; the company's controlling shareholder plans to increase “Mountain Eagle Convertible Bonds” with capital of not less than 0.2 billion yuan and plans to use 0.35-0.7 billion yuan to repurchase shares to convert convertible bonds; on August 16, the “Mountain Eagle Convertible Bonds” and “Eagle 19 Convertible Bonds” were once again downgraded from 2.31 yuan/share to 2.25 yuan/share.

Reduce costs, control expenses and increase efficiency, and steady and improving operating cash flow

24Q2's gross sales margin of 7.82% (YoY -1.66pct), net profit margin 0.98pct (YoY +0.03pct), period expense ratio 11.43% (YoY -1.22pct), sales expense ratio 1.17% (YoY -0.12pct), management+R&D expense ratio of 6.52% (YoY -1.60pct), represents a reduction in core management's remuneration and financial expense ratio of 3.73% (YoY +0.51 pct). 24Q2 inventory of 2.499 billion yuan (YoY -0.508 billion yuan), inventory turnover days 36.84 days (YoY -8.59 days), accounts payable and notes of 7.066 billion yuan (YoY +2.336 billion yuan), accounts receivable 4.308 billion yuan (YoY -0.058 billion yuan), net operating cash flow of 2.112 billion yuan (YoY +1.703 billion yuan), cash flow Continued improvement.

Raw material support continues to be optimized, and production capacity expansion supports production and sales improvement

In 2023, the company's paper production capacity reached 8.12 million tons. The company's Zhejiang Shanying 0.77 million ton paper project and the Jilin Shanying Phase I 0.3 million ton corrugated paper project have been completed, and supporting projects supporting 0.5 million tons of bamboo and wood fiber are being implemented one after another. The self-sufficiency rate of raw materials is expected to gradually increase, and the fiber resource layout is expected to continue to improve the profitability of high-end wrapping paper products. The company is expected to complete a production capacity of nearly 10 million tons after the completion of the 1.8 million ton production capacity of the Suzhou base of the project under construction in the future, and its market share is expected to increase.

Profit forecasting and valuation

The price and profit situation of box board corrugated paper fluctuates with demand, and industry demand may be at risk of insufficient repair momentum. We expect the company to achieve revenue of 31.815/36.047/38.28 billion yuan in 24-26, +8.46%/+13.30%/+6.20%, respectively, and achieve net profit of 0.473/0.928/1.246 billion yuan, respectively, +203.00%/+96.02%/+34.23%, corresponding PE is 14/7/5X, maintaining “purchase” ratings.

Risk warning

Downstream sentiment fluctuates, production capacity is concentrated, and paper price recovery falls short of expectations