Key points of investment

Basic events

2024Q1-Q3 revenue was 2.851 billion yuan (-4.45% YoY), net profit attributable to mother 0.409 billion yuan (YoY +2.94%), net profit not attributable to mother 0.374 billion yuan (YoY -1.27%). 24Q3 revenue was 0.905 billion yuan (YoY -19.44%), net profit to mother 0.106 billion yuan (YoY -33.89%), net profit not attributable to mother 0.1 billion yuan (YoY -36.99%). Q3 results were in line with expectations.

Q3 production capacity was successfully launched, and Q4 is expected to be released at an accelerated pace

We expect 24Q3 due to the influence of hot weather, rotation of some of the company's production lines, a slight month-on-month decline in production and sales, a slight month-on-month decrease in the sales structure of decorative base paper, a slight month-on-month decrease in the price of the company's tonnage. On the raw material cost side, Q2 outer plate slurry fluctuates strongly. Considering the inventory cycle, the actual production cost of Q3 will increase sequentially and product profitability will decrease slightly. Looking ahead to 24Q4, the production capacity of the company's new production line in Ma'anshan is climbing. Q4 production and sales are expected to increase month-on-month. Considering the inventory cycle, Q4 costs are declining month-on-month, and prices for some products may be adjusted as pulp prices fluctuate. It is expected that Q4 profitability will be steady.

Q3 Profit margins decreased month-on-month, and cash flow improved

(1) Profitability: 24Q3 gross sales margin of 14.14% (YoY -6.47pct, month-on-month -3.05pct), net profit margin 11.76% (YoY -2.57pct, month-on-month -3.85pct). The decrease in profitability is mainly due to rising raw material costs.

(2) Expense ratio: 24Q3 company expense ratio 4.02% (year-on-year -0.92pct, month-on-month -1.08pct); sales expense ratio 0.78% (year-on-year +0.11pct), management+R&D expense ratio 4.04% (year-on-year -0.63pct), financial expenses ratio -0.80% (year-on-year -0.40pct).

(3) Operational efficiency: accounts receivable of 0.762 billion yuan (-0.014 billion yuan), accounts receivable turnover of 52.12 days (year-on-year +3.43 days), accounts payable and notes of 1.305 billion yuan (-0.113 billion yuan), inventory of 0.755 billion yuan (+0.027 billion yuan), inventory turnover of 99.16 days (+8.46 days year on year), net operating cash flow of 0.188 billion yuan (+0.319 billion yuan year over year).

High-end decorative base paper leaders, domestic and foreign market share is expected to continue to grow. The company is a global high-end decorative base paper leader. The production capacity of the Maanshan 0.18 million-ton special paper production line expansion project was successfully expanded. The company led the technical level and cost efficiency of decorative base paper. In June, the EU launched an anti-dumping investigation against Chinese decorative paper. We expect that before the European anti-dumping ruling comes to fruition, the company's overseas pace will be limited and there is plenty of room for medium- to long-term growth.

Profit forecasting and valuation

We expect the company to achieve revenue of 4.196/5.002/5.934 billion yuan in 24-26, +5.54%/+19.20%/+18.65% YoY, net profit of 0.585/0.707/0.85 billion yuan, +3.34%/+20.82%/+20.25% YoY. The corresponding PE is 10/8/7X, respectively, maintaining a “buy” rating.

Risk warning: weak recovery in demand; capacity expansion falls short of expectations; large fluctuations in product prices; large fluctuations in pulp prices; trade policy risks