Yutong Technology: A well-known domestic leader in fine paper packaging. The company started with consumer electronics packaging and has a leading market share in the global 3C packaging market. In recent years, it has actively expanded high-value-added consumer packaging fields such as tobacco and alcohol, cosmetics, health, culture and creativity, and high-end food, and is deeply tied to core customers. The compound growth rate of revenue and net profit in 2014-2023 was 17.1% and 11.0%. Based on the present, large capital expenses are phased out, smart factories are being replicated at an accelerated pace, and new businesses with high gross margins continue to expand, and profitability is rising marginally.
The packaging industry is easy to defend and difficult to attack. Wealth relies on cost efficiency and service to build a moat. 1) The 10 billion leader in the low bargaining chain: The paper packaging industry has characteristics such as low entry threshold, narrow upstream and downstream width, and limited transportation radius. Domestic CR8 is about 18%, and the pattern is scattered. The company focuses on the field of boutique paper packaging, which is easy to protect and difficult to attack, covering high-quality major customers in the fields of consumer electronics, high-end tobacco and alcohol, and consumer goods. The cooperation period is long and stable, and the global layout of the production base and strong industrial chain extension service capabilities have built a moat.
2) Learning from overseas experience: Referring to the increase in CR4 in North American paper and packaging from 25% in 1970 to 70% now, it is expected that domestic concentration will also increase. Reviewing the growth history of the North American paper packaging giant WestRock can be seen. Whether it is expanding the terminal market horizontally or extending the vertical industrial chain, mergers and acquisitions of high-quality products by leading companies are an important means of increasing their share.
Consumer electronics packaging: marginal recovery, booming economy. The global consumer electronics packaging scale exceeds 30 billion yuan. Yutong has a market share of about 30% of 3C packaging, mainly smartphones, tablets, and PCs, and has basically achieved full coverage of 3C customers. In 2022, the acquisition of Renhe and Huabaoli entered the field of flexible packaging and smart hardware to strengthen industrial collaboration. Currently, consumer electronics demand is recovering actively. Global smartphone shipments at 23Q4/24Q1/24Q2 were +8.5%/7.8%/6.5%, respectively. Looking ahead, technological innovation and AI terminal implementation are expected to accelerate the consumer electronics innovation cycle and switching trend. Based on the logic of increasing customer share and expanding new customers and customers to develop new products, the company's 3C packaging business is still interesting.
Analysis of diverse expandable spaces such as tobacco and alcohol bags and environmental protection bags. The ceiling of the large consumer packaging market is not lower than that of the 3C sector. According to our estimates, the packaging output value for major domestic consumer sectors such as tobacco, alcohol, and cosmetics is expected to reach 95 billion yuan. Under the trend of using paper instead of plastic, eco-friendly packaging for domestic and foreign restaurants is also expected to have a market size of 75 billion yuan. The company's current market share in cigarette labels, wine bags, cosmetic packaging and global eco-friendly packaging is 4.0%/2.7%/1.8%/3.1%, respectively. The growth path of expanding customers and increasing share is worth looking forward to.
Profit prediction and valuation: The company is a leader in 3C packaging, opening up room for growth and effectively improving the ability to withstand cyclical risks. The current high capital expenditure has ended, stable high dividends, and profits are expected to gradually increase. Net profit due to mother in 2024-2026 is expected to be 1.69/1.99/2.29 billion, compared to +18%/15%, diluted EPS = 1.82/2.14/2.47 yuan, corresponding PE = 12.7/10.8/9.4x. Through multi-angle valuation, the company's reasonable stock price is expected to be 27.3-30.9 yuan/share, covering for the first time, giving a “superior to the market” rating.
Risk warning: Exchange rates and raw material prices fluctuate greatly; market competition intensifies; downstream demand falls short of expectations.