Mountain Eagle International announced 3Q24 results, with Q1-Q3 revenue of 21.6 billion yuan (yoy +1.36%) and net profit of 0.069 billion yuan (net loss of 0.116 billion yuan for the same period last year). Q3 achieved revenue of 7.347 billion yuan (yoy -2.87%) and net loss to mother of 0.045 billion yuan (net profit of 0.155 billion yuan for the same period last year). Profit performance in the third quarter was weak, mainly due to the drop in the price of raw paper, which dragged down gross margin. Since the release of orders during the peak season, the trend of marginal demand repair has begun. The imbalance between supply and demand in the box board corrugated paper industry is expected to ease, which is expected to help the company repair marginal profit margins in the future. The company is steadily advancing the disposal of some assets and taking more measures to speed up the return of capital, which is conducive to improving financial health and resilience to risks. Maintain an “Overweight” rating.

The slow recovery in demand dragged down Q3 revenue, and the marginal recovery trend showed that Q3 companies' revenue fell 2.87% year on year. Domestic downstream demand was weak in the third quarter. Production capacity at the end of the industry showed a clear trend but the pace was still slow. The imbalance between supply and demand still existed, and industry prices declined significantly. As of late September, the prices of corrugated paper and box board paper fell by about 10%/8% respectively from the beginning of the year. However, since the National Day holiday, the paper factory's shipment situation has improved marginally, and the price of raw paper has stabilized. As of October 30, the prices of corrugated paper and box board have also rebounded sequentially for two consecutive weeks. With the further release of downstream stocking orders during the Q4 peak season, marginal price recovery is expected to drive a gradual recovery in profits.

Combines multi-dimensional measures to improve payment capacity and financial health

The company actively promotes the sale of shares in the participating company Nordic Paper to speed up the return of capital and enhance debt payment capacity. On October 14, the company announced that SVP intends to issue a public cash offer to Nordic Paper shareholders through its subsidiary, with a total consideration of 16.1 SEK (about 1.1 billion yuan). In addition, the company has introduced strategic investors from the two major paper manufacturing bases in Guangdong and Central China, with an equity financing amount of 1 billion yuan to optimize the debt structure. The company is also repurchasing shares to convert convertible bonds. The planned amount is 0.35-0.7 billion yuan, which is conducive to strengthening market confidence. Follow the progress of subsequent convertible bond payments.

Production capacity expansion is progressing steadily, and cost optimization measures are expected to help gradually improve profitability. Construction and production capacity expansion are progressing steadily. Currently, 8 million tons of production capacity have been built in the core regions of East China, South China, and Central China, which is the second largest in the industry. With the subsequent completion of the 1.8 million ton production capacity of the Suzhou base under construction, it is expected to provide solid support for performance growth. Combined with the company's measures to reduce distribution links and optimize product structure, subsequent cost control capabilities and operating quality are expected to steadily improve, laying a better foundation for improving profitability.

Profit forecasting and valuation

We maintain our previous profit forecast and expect net profit to mother of 0.55/0.68/0.81 billion yuan in 2024-26. Referring to the historical average of 0.85xPb over the past five years, considering the industry supply and demand relationship that has not yet been restored, 0.74x2025 PB (2025 BPS: 2.85 yuan) was given, and the target price was maintained at 2.11 yuan.

Risk warning: The recovery in consumption was weaker than expected; supply was faster than expected; the impact of imported paper was greater than expected.