Key points of investment:

The company released its 2024 mid-year report, and the performance was in line with expectations. 2024H1 achieved revenue of 4.668 billion yuan, down 1.6% year on year, net profit of 0.354 billion yuan, up 16.3% year on year, after deducting non-net profit of 0.352 billion yuan, up 19.1% year on year; 2024Q2 single quarter revenue of 2.425 billion yuan, down 3.1% year on year, and net profit of 0.197 billion yuan year on year, up 6.1% year on year after deducting non-net profit of 0.195 billion yuan, up 8.5% year on year.

The main packaging industry has a steady foundation, actively explores new products, new customers and new fields to achieve steady growth; lean management improves production efficiency, optimizes product structure, and reduces superimposed raw material costs to drive profitability improvement.

1) Beverage packaging business (including PET bottles and preforms, crown caps and labels, plastic anti-theft caps, OEM beverages): Revenue performance is resilient, and profit improvement trends are obvious. 2024H1 beverage packaging achieved revenue of 2.372 billion yuan, up 2.3% year on year, of which 2024Q2 achieved revenue of 1.306 billion yuan, an increase of 0.2% year over year. Looking at the division of business, 2024H1 Pet bottles and preforms, crown caps and labels, plastic anti-theft caps, and OEM beverages achieved revenue of 8.64, 0.713, 0.312, and 0.484 billion yuan, respectively, with year-on-year changes of 1.2%, -2.3%, +7.9%, and +8.5%, respectively. Among them, Q2 changed +0.3%, -6.8%, +10.7%, and +4.8% year-on-year respectively. With the exception of Crown Cap and Label due to the high base for the same period last year (2023Q2 increased by 12.3% year over year), the rest of the business achieved positive growth in the context of high external environmental pressure. The beverage packaging sector continues to deepen strategic cooperation with major customers, and closely follows the strategic customer layout to expand market share and layout emerging markets such as South China and Southwest China; at the same time, it is actively developing new customers, improving customer and product structures, and achieving rapid growth in the tea, condiments, and daily chemicals markets. Furthermore, the beverage packaging sector has benefited from falling raw material prices, product structure optimization, and improvements in the company's intelligent production efficiency, and the trend of improving profits is remarkable. According to the company's operating data announcement, the prices of the main raw materials for 2024H1 all declined year-on-year. The gross margins of the 2024H1 company's PET bottles, bottles, crown caps and labels, plastic anti-theft caps, and OEM beverages were 29.6%, 14.3%, 28.1%, and 25.3%, respectively, up 2.0, 0.9, 9.7, and 0.4 pct from 2023. Among them, the gross margin of plastic anti-theft caps improved the most. Corresponding to the subsidiary Shanghai Ziri Packaging 2024H1, achieved a net profit of 44.83 million yuan, a year-on-year increase 91%

2) Soft packaging business (colored paper packaging and printing, coated aluminum paper and cardboard, PA/PE film, non-aluminum-plastic film): Business growth shows strong growth. The 2024H1 soft packaging business achieved revenue of 1.376 billion yuan, an increase of 12.3% year over year, of which revenue was 0.663 billion yuan in 2024Q2, an increase of 8.0% year on year. Looking at the division of business, 2024H1 colored paper packaging printing, aluminum spray paper, cardboard, and PA/PE film achieved revenue of 1.042, 0.185, and 0.149 billion yuan respectively, with year-on-year changes of +10.8%, +67.6%, and -14.7%, respectively. Among them, Q2 changed +3.9%, +69.5%, and -12.6% year-on-year respectively. The paper packaging business is actively developing new customers, cooperating with Wallace, Danone, etc., and is officially put into operation as a paper packaging supplier in McDonald's Hubei Smart Industrial Park. It accelerates research and development of new products such as plastic-free and environmentally friendly, and lays out future growth. Zijiang aluminum spray promoted the efficiency of the entire supply chain by developing the card game business, expanding the foreign trade market, and developing the membrane sales market, and revenue increased by more than 60% over the same period last year.

3) Aluminum-plastic film: Short-term performance under pressure, broad medium- to long-term space. 2024H1 aluminum-plastic film achieved revenue of 0.26 billion yuan, a year-on-year decrease of 30.8%, of which 2024Q2 revenue was 0.138 billion yuan, a year-on-year decrease of 22.9%; 2024H1 Zijiang New Materials (aluminum-plastic film subsidiary) achieved net profit of 196.067 billion yuan, a year-on-year decrease of 35.9%. The aluminum-plastic film business was affected by cost reductions in the lithium battery industry chain, and the unit price decline was quite obvious. The company actively controlled the sales share of customers with low gross margin, putting pressure on revenue side performance. However, thanks to the company's high capacity utilization rate, leading production process, and localization of raw materials and equipment, the company's profitability is still ahead of its peers, and its competitiveness is outstanding. Following the optimization of the competitive landscape of the industry, the profitability of aluminum-plastic film is expected to pick up. Furthermore, aluminum-plastic film is thought to be more suitable for the solid-state battery path. Subsequently, with the gradual industrialization of solid-state batteries, Zijiang has obvious card position advantages.

Commercial and trade business losses have been reduced significantly, and real estate is expected to unleash profit elasticity. 1) Commerce: The company continued to shrink the scale of its trade business, from a peak of 1.79 billion yuan in 2019 to 0.691 billion yuan in 2023. Zijiang Trading has reduced losses by sorting out and eliminating bad brands and channels, handling non-performing assets, and streamlining personnel. The 2024H1 trade business achieved revenue of 0.293 billion yuan, a year-on-year contraction of 27.5%. The loss in the first half of 2024 was 6.06 million yuan, which is a significant reduction from the loss of 89.48 million yuan in the trade business in 2023. 2) Real estate: Zidu Shanghai Jingyuan Phase III North District 68 villas began the subscription process in October 2023. The final contract debt of the 2024H1 company reached 1.864 billion yuan, +1.767 billion yuan over the same period last year, mainly due to advance payment of housing payments, which is expected to gradually be recognized as revenue and profit in the future. Real estate subsidiary Zidu Sheshan Real Estate lost 54.93 million yuan in 2023. Subsequently, as advance housing payments are gradually converted into revenue, real estate business profits are expected to improve significantly.

The main packaging industry has created a new growth curve and returned to an upward channel by expanding products, expanding customers, and expanding fields; sales in the aluminum-plastic film business grew steadily, and profitability is expected to recover after subsequent competition eases; the real estate and trade business had large losses in the early stages, and the scale of the commercial and trade business is expected to improve in the future as sales of Jingyuan Phase III North District commence and the scale of the commercial and trade business shrinks.

In 2020-2023, the dividend was 0.25 yuan per share for four consecutive years, corresponding to the current dividend rate of 4.9%, highlighting the high dividend advantage. Maintaining the 2024-2026 net profit forecast of 0.712/0.815/0.888 billion yuan, net profit to mother increased 27.3%/14.5%/8.9% year-on-year respectively in 2024-2026. The PE corresponding to the current market value is 11/9/9X, maintaining the “buy” rating.

Risk warning: raw material prices are rising, terminal demand is weak, and competition for aluminum-plastic film is intensifying.