This article comes from the official account "Light Coke" on Wechat.

Basic event

Nine Dragons Paper(02689) during the reporting period, the income was 51.96 billion yuan (- 6.1%) and the net profit was 4.168 billion yuan (+ 7.5%). Excluding the exchange profit and loss of 262 million, the return profit was 3.906 billion (- 2.9%). During the period, the company realized sales of 15.3 million tons, an increase of 1.2 million tons over the same period last year. Excluding exchange losses, the net profit per ton was about 255yuan (- 10.5%). Among them, 20H1 realized operating income of 23.09 billion yuan (- 5.3%), net profit of 1.89 billion yuan (+ 18.1%), net profit of 1.501 billion yuan (- 4.2%) after excluding exchange profit and loss of 389 million, realized sales of 6.8 million tons, and net profit per ton excluding exchange profit and loss was 221 yuan, down 22.1% from the previous month, and profitability declined.

Main points of investment

The sales volume increased steadily, and the sales of corrugated paper and gray-soled whiteboard performed well.

During the reporting period, the company's papermaking business achieved sales of 51.166 billion yuan (- 5.9%), 15.3 million tons (+ 8.5%), and pulp business sales of 175 million yuan (- 23.3%). According to the breakdown of paper, (1) Packaging paper: during the period, the income was 44.519 billion (- 5.09%), the sales volume was 14.34 million tons (+ 1.73%), and the unit price was 3103.7 yuan / ton (- 6.78%). Among them, the sales of cow cardboard, corrugated paper and gray-soled whiteboard were 737,396 and 2.8 million tons respectively, accounting for 46.4%, 21.7% and 18.6% of packaging revenue, respectively. Corrugated paper, gray whiteboard sales performance is beautiful. (2) Cultural paper: the income during the period was 5.78 billion (- 10.8%), the sales volume was 1.02 million tons (- 8.0%), and the unit price was 5674.48 yuan / ton (- 3.1%). (3) Special paper: the income realized during the period was 867 million yuan (- 12.85%), accounting for 1.69% of the total revenue.

Health events issued orders tons of profits under pressure, optimistic that the economy will improve in the second half of the year.

(1) in the first half of the year, the health event-Spring Festival affected the production and operation of the company, with sales volume of 6.8 million tons, a decrease of 1.7 million tons compared with the previous month; in terms of price, the price of the industrial chain of pulse supply of waste paper was collectively lowered in the early period after resumption of work. The price of containerboard paper dropped to 3777 yuan / ton in May from the March high, while the net profit per ton of the corresponding company excluding foreign exchange gains and losses was only 3777 yuan / ton, down 22.1 percent from the previous month.

(2) the recovery of downstream demand in the second half of the year superimposed raw material restrictions, and the price of containerboard is expected to rise. With downstream demand to repair superimposed raw material restrictions (the first 11 batches of foreign waste quota totaled 5.9431 million tons, a decrease of 4.8088 million tons compared with the same period last year, driving up the national waste price from 1785 yuan / ton at the beginning of April to 2180 yuan / ton at present). This week, the prices of containerboard and corrugated paper are 4510 yuan / ton and 3658 yuan / ton, which are basically the same, up 750yuan / ton and 550yuan / ton from the low in early May. It is expected that the traditional peak season of containerboard paper will be approaching, and the channel inventory will continue to be digested (social inventory of 1.361 million tons in August, down 9.5% from June; leading enterprises). In addition, the price difference between white card and whiteboard and cardboard is expected to rise steadily, which is good for the profit release of the company.

The RMB has entered the appreciation cycle and Jiulong has benefited significantly.

Recently, the exchange rate of the US dollar against the RMB has continued to rise, currently at 6.8238, an appreciation of 4.9% from the end of May, and the RMB is expected to be in the appreciation channel. As the fluctuation of RMB exchange rate affects the purchasing cost of wood pulp and waste paper, as well as operating data such as US dollar working capital and US dollar debt, it is more favorable for the imported paper sector. Due to the relatively large amount of external waste procurement of Nine Dragons Paper Co., Ltd., and the high proportion of US dollar loans, Nine Dragons Paper has benefited significantly. According to our detailed calculation, when the RMB exchange rate appreciates by 1%, the net profit of Jiulong Paper increases by 58.95 million yuan, and the net profit increases by 1.4% with reference to the net profit of fiscal year 2020.

The pulp and paper production capacity has expanded in an orderly manner, gradually promoting the production of 350000 tons of packaging paper and 600000 tons of packaging paper and Malaysian recycled pulp in Quanzhou and Shenyang during the reporting period of industrial chain integration; as of 20H1, it has a total production capacity of 17.32 million tons of paper and pulp, including 16.47 million tons of paper and 850000 tons of pulp (150000 tons of overseas wood pulp and 700000 tons of recycled pulp).

(1) Paper: 20H2 plans to put into production a total of 1.1 million tons of containerboard paper in Hebei and Dongguan, 550000 tons of packaging paper in 22Q2 Malaysia, and 1.2 million tons of packaging paper in 2022Q3 Hubei pulp and paper base. It is expected that the total paper production capacity will reach 19.32 million tons by the end of 2022.

(2) Pulp: prepare the first pulp-paper integration project in Jingzhou, Hubei Province, including 600000 tons of wood pulp capacity; plan to expand Shenyang's wood pulp capacity of 600000 tons; pulp production capacity is expected to exceed 2 million tons by the end of 2022. In addition, in September 1919, the company acquired the packaging factory and extended to the downstream industrial chain, with a total design capacity of 1 billion square meters, bringing multi-synergy benefits to the company to expand its business volume and enhance benefits.

The gross profit margin rises slightly, and the expenses are well controlled.

During the reporting period, the gross profit margin increased by 2.14pct to 17.58% compared with the same period last year, and the gross profit margin of 20H1 increased by 2.45pct to 17.77% year-on-year. The price decline of raw materials and waste paper was greater than that of base paper during the period. The total expense rate for the period is 8.01% (+ 0.31pct), of which the sales expense rate is 3.05% (+ 0.2pct), the management expense rate is 3.62% (+ 0.51pct), and the financial expense rate is 1.34% (- 0.4pct). Taken together, the company's net return rate during the reporting period was 8.14% (+ 0.20pct), while the 20H1 net interest rate rose to 8.18% from 6.56% in the same period last year.

Debt ratio continues to decline, operating cash flow performance is beautiful

At the end of the period, the company's asset-liability ratio was 48.57%, down 1.81pct from the same period last year. At the end of the period, the company's accounts receivable totaled 4.597 billion yuan, an increase of 613 million yuan compared with the beginning of the period, and the turnover days of accounts receivable decreased by 2.8 days compared with the same period last year; the inventory on the account was 5.246 billion yuan, an increase of 613 million yuan over the beginning of the period, and the inventory turnover days were 1.03 days to 54.68 days less than the same period last year, which is expected to be related to lower 20H1 sales; accounts payable and notes were 5.473 billion yuan, 113 million yuan less than the beginning of the period. During the period, the company's net operating cash flow was 8.949 billion yuan (+ 3.61%), with excellent performance.

Profit Forecast:The company is expected to achieve operating income of 585.3 / 654.9 / 70.44 billion yuan (+ 7.1% / + 11.9% / + 7.6%) and return net profit of 51.0 / 56.4 / 6.35 billion yuan (+ 31.5% / + 10.6% / + 12.5%) in fiscal year 21-23, corresponding to PE of 9.1x / 8.2x / 7.3x, taking into account the upward elasticity of the company's profits and the current valuation is significantly low. Give a "buy" rating.

Risk hint: raw material prices fluctuate sharply, competition intensifies, and the second health incident (editor: Xiao Shunlan)