The company released the 2024 three-quarter report: 2024Q1-3 achieved revenue of 2.851 billion yuan (-4.5% YoY), net profit 0.409 billion yuan (YoY +2.9%), net profit of 0.374 billion yuan (YoY -1.3%); 24Q3 realized revenue of 0.905 billion yuan (YoY -19.4%), net profit of 0.106 billion yuan (YoY -19.4%), net profit to mother 0.106 billion yuan (YoY -3.9%), net profit of 0.1 billion yuan (-37.0% year-on-year ratio)

Costs have risen, and tons of profit have continued to decline. Industry demand is compounded by new supply shocks in the off-season, and production and sales are expected to decline month-on-month in Q3. The company focuses on the middle and high-end tracks, and the price market remains strong. The average price dropped slightly month-on-month due to changes in the product structure in the context of consumption downgrade, and the cost of the Q3 statement increased, and the profit per ton is expected to drop to 1,300+ yuan/ton month-on-month. Looking ahead, it is expected that the Q4 price market will fluctuate at a high level, storage costs of low-priced raw materials will improve, and profitability is expected to pick up at the bottom.

New production capacity has been released, and the growth path is clear. Since the end of 23, the total production capacity of decorative paper has reached 0.35 million tons. Currently, 0.4 million tons of specialty paper production capacity has yet to be released (including decorative base paper). The new production capacity will be implemented in an orderly manner in 2025, and it is expected to enter specialty paper for food, medical treatment, industry, etc., and the growth path is clear.

Profits were under pressure for a short time, and cost control was excellent. 2024Q3 gross margin was 14.1% (-6.5 pct year over year), and net profit margin to mother was 11.8% (-2.6 pct year over year). In terms of cost performance, the cost rate during 2024Q3 was 4.0% (-0.9pct year on year), with sales/R&D/management/finance expense ratios of 0.8%/2.4%/1.6%/-0.8% (+0.1/-0.5/-0.4pct), respectively, with excellent cost control.

Cash flow performance was excellent, and operating capacity remained stable. 2024Q3's net operating cash flow was 0.188 billion yuan (+0.319 billion yuan year over year). In terms of operating capacity, as of 2024Q3, the number of days receivable, payable, and inventory turnover was 52.12/76.69/99.16 days, respectively (+3.43/-2.32/+8.46 days compared to the previous year).

Profit forecast: The company's net profit due to mother in 2024-2026 is expected to be 0.53, 0.68, and 0.78 billion yuan, respectively, and the corresponding PE valuations are 11.8, 9.3X, and 8.1X, respectively, maintaining a “buy” rating.

Risk warning: Raw materials fluctuated more than expected, demand recovery fell short of expectations, and competition intensified.