Core views

24H1 achieved revenue of 14.255 billion yuan/ +3.7%, net profit due to mother of 0.114 billion yuan/year-on-year reversal of losses, after deducting non-attributable net profit of -0.108 billion yuan/year-on-year loss reduction. 24Q2 achieved revenue of 7.586 billion yuan/ +2.6%, net profit due to mother 0.074 billion yuan/ +6.1%, net profit not attributable to mother - 0.093 billion yuan/year-on-year increase in losses. Looking at volume and price splitting, the company achieved paper sales volume of 3.4643 million tons/ +17.1% in the first half of the year. The estimated sales price per ton was 2,758 yuan/ -6.6%, and gross profit per ton was 189 yuan/ -2.6%. Mainly due to domestic demand falling short of expectations, and the prices of box board paper and corrugated paper fluctuated downward. In recent years, the pace of company expansion has been rapid, and financial leverage is high (24H1 balance ratio of 70.75%). Against the backdrop of deteriorating external business environment and declining profitability, debt repayment capacity is under pressure. Faced with two convertible bonds that are about to expire, the company has taken many measures to actively promote asset disposal. It is recommended to pay attention to the company's subsequent debt payments.

occurrences

The company issued an announcement on the transfer of shares in industrial mergers and acquisitions funds by wholly-owned subsidiaries. Shanghai Shanying Private Equity Fund Management Co., Ltd., a wholly-owned subsidiary of the company, transferred the 0.395 billion yuan Jiaxing Yinghuang Equity Investment Partnership (Limited Partnership) paid-up share to Haiyan Hangzhou Bay Venture Capital Co., Ltd., at a transfer price of 0.539 billion yuan. The transaction is expected to improve the company's cash flow and have a positive impact on the company's current finances.

The company released its 2024 semi-annual report. 24H1 achieved revenue of 14.255 billion yuan/ +3.7%, net profit due to mother of 0.114 billion yuan/year-on-year loss, deducted non-attributable net profit of 0.108 billion yuan/year-on-year loss; non-recurring profit and loss of 0.222 billion yuan, mainly government subsidies of 0.248 billion yuan. 24H1 net cash flow from operating activities was 2.572 billion yuan/ +233.1%; the basic EPS was 0.03 yuan/share, reversing the loss year over year, and the weighted average ROE was 0.82% /+2.84pct. Looking at a single quarter, 24Q2 achieved revenue of 7.586 billion yuan/ +2.6%, net profit to mother 0.074 billion yuan/ +6.1%, net profit not attributable to mother - 0.093 billion yuan/year-on-year increase in losses.

Brief review

Domestic demand recovered slowly in the first half of the year, paper prices fluctuated and declined, and the company's paper profits bottomed out. By business, ① Papermaking sector: achieved revenue of 9.555 billion yuan/ +9.4% in the first half of the year, and a gross profit margin of 6.74% /+0.28pct. Looking at volume and price breakdown, the company achieved paper sales volume of 3.4643 million tons/ +17.1% in the first half of the year. It is estimated that the average sales price of the company was 2,758 yuan/ton, -6.6% year over year, and gross profit per ton was 189 yuan, -2.6% year over year. In the first half of 2024, due to the slow recovery in domestic demand, the box board paper and corrugated paper market exceeded demand, and prices showed a fluctuating downward trend. According to Zhuochuang information, the average price of 24H1 box board paper was 3,745 yuan/ton, -8.7% over the same period last year. The average price of corrugated paper was 2,751 yuan/ton, -7.9% year-on-year. ② Packaging sector: Achieved revenue of 3.292 billion yuan/ -3.7% in the first half of the year, and a gross profit margin of 12.51% /-0.26pct. ② Trade sector: The first half of the year achieved revenue of 1.015 billion yuan/ -10.3%, gross profit margin of 10.52% /+0.59pct.

Gross margin declined sequentially in 24Q2, and management cost control was effective in the first half of the year. 24H1's gross profit margin was 8.79% /+0.11pct, net profit margin 0.62% /+3.05pct; in a single quarter, 24Q2's gross profit margin was 7.82% /-1.66pct, month-on-month -2.06pct, net profit margin 0.81% /+0.24pct, month-on-month +0.40pct.

Expense side, 2

The 4H1 sales, management, R&D, and finance cost ratios were 1.21% /-0.13pct, 4.05% /-1.45pct, 2.74% /-0.34pct, 3.91% /-0.06pct, and management expenses were 0.577 billion yuan/ -23.7%, due to active salary cuts and lower labor costs by the company's core management.

In recent years, the company's production capacity at home and abroad has expanded rapidly, and expanded upstream and downstream vertically to improve the layout of raw materials and enhance customer service. 1) Since the major asset restructuring in 2013, the company's production capacity has expanded rapidly. With the completion and commissioning of the 0.77 million ton paper project in Zhejiang and the 0.3 million ton corrugated paper project in Jilin, the company has formed a production capacity layout of 8.12 million tons in six major bases in East China, South China and Central China, ranking second in the industry in terms of scale. 2) Under the anti-waste order, raw material resources are the core competitive element. In terms of domestic recycled fiber, the company has established long-term stable delivery relationships with packaging stations through channel construction at franchise stations and alliance stations; in terms of high-quality fiber raw materials, the company has achieved an overseas supply of about 0.9 million tons/year of recycled pulp through cooperation and self-construction. At the same time, it supports various papermaking bases to build 0.5 million tons of bamboo and wood fiber production capacity, optimize production costs, and further improve product quality and overall market competitiveness. 3) In the packaging sector, the company transformed into a specialized packaging solution service provider centered around service value customers, keeping up with the pace of overseas expansion of major customers and further expanding its overseas layout. 24H1 major customers accounted for 44.4% /+2.3 pct of orders.

Take more measures to improve the balance and liability situation and keep an eye on the progress of the company's debt payments. In recent years, the company's pace of expansion has been rapid, financial leverage is high, and the balance ratio at the end of 24H1 is 70.75%. Against the backdrop of deteriorating external environment and declining profitability, debt repayment capacity is under pressure. Facing the two convertible bonds that are about to expire, the company has taken many measures to actively promote asset disposal and guarantee debt payment. It has now introduced strategic investors from the two major paper manufacturing bases in Guangdong and central China, with an equity financing amount of 1 billion yuan. At the same time, it is actively promoting the sale of shares in the Nordic paper industry, promoting the state-owned strategic investment in Xiangheng Creative Packaging, and transferring investment fund shares. It is recommended to pay attention to the progress of the company's convertible bond payment.

Investment advice: We expect the company's revenue for 2024-2026 to be 30.62, 33.94, and 37.33 billion yuan, respectively, +4.4%, +10.0% year-on-year, and net profit to mother 0.285, 0.626, and 0.85 billion yuan, respectively; the corresponding P/E is 22.0x, 10.0x, and 7.4x, adjusted to a “gain” rating.

Risk warning: 1) Risk of debt default: The company's production capacity has expanded rapidly in recent years, and financial leverage is high. Against the backdrop of a deteriorating external environment and declining profitability, in the face of two installments of convertible bonds due and payment before the end of 25 years, the solvency is under pressure. Although the company has taken many measures, actively promoted asset disposal, and made every effort to guarantee payment of debts, there is still a certain risk of default. 2) Delisting risk: The company's stock price has continued to fall below 2 yuan since the beginning of 2024, and is close to the face value delisting line of 1 yuan. If stock market fluctuations intensify, the stock price may fall continuously in stages, or cause the stock price to fall below 1 yuan face value, and face the risk of delisting. 3) Profitability recovery falls short of expected risk: China's corrugated board industry has rapidly expanded production capacity in recent years, but under macroeconomic influence, demand growth has fallen short of expectations, leading to overcapacity, insufficient construction, and low paper prices and profits in the industry. If the macroeconomic environment at home and abroad continues to weaken in the future, or if the industry expands again and production capacity falls short of expectations, it will cause profit recovery to fall short of expectations, affecting the performance and valuation level of the target company.