Event

On January 29, the company issued a forecast for 2020: it is expected to achieve a net profit of 155 million yuan to 190 million yuan in 2020, an increase of 27 million yuan to 62 million yuan over the same period last year, and an increase of 21.09% to 48.44% over the same period last year. The net profit after deducting non-return will be 158 million yuan to 193 million yuan, an increase of 47 million yuan to 82 million yuan compared with the same period last year, and an increase of 42.34% to 73.87% over the same period last year. The net profit of returning to the mother in the fourth quarter of 2020 was 8 million yuan to 43 million yuan, a decrease of 20.4% to 85.2% compared with the same period last year, and the net profit of deducting non-return to the mother was 7 million yuan to 42 million yuan, a decrease of 10.6% and 85.1% over the same period last year.

Comment

The increase in canning rate in 2020 will drive up sales in the industry, and it is expected to continue the economic trend in 2021. In 2020, the canning rate increased compared with last year, and offline consumption and bottled wine sales recovered in the second half of the year, but canned wine sales were still better than the same period last year. We believe that the increase in canning rate is irreversible and it is expected that the sales of two-piece cans will maintain the growth trend in 2021.

Raw material prices rose sharply in the fourth quarter of 2020, and product prices increased in the first quarter of 2021. From October to November 2020, the price of aluminum, the main raw material for two-piece cans, rose by about 20%, causing the cost of a single can to rise by 1-2 points, affecting the company's gross profit. In 2021, the industry reached a price increase agreement with some beer enterprises, and the price per can increased, which covered the negative impact of the rise in aluminum prices to a certain extent. In addition, aluminium prices have fallen since December and profit margins are expected to rise in the first quarter of 2021.

The company will control the shares of subsidiaries, control capacity and profitability will be improved. According to the company's transaction plan, Baosteel Packaging will hold 97.51% of Hebei cans, Wuhan packaging, Foshan cans and Harbin cans respectively after the transaction is completed, which will enhance the company's management and control ability and operational efficiency of the holding subsidiary. The total net interest rate of the four subsidiaries is 2.21%, which is the same as the company's total net interest rate.

In the future, with the improvement of subsidiary management and operational efficiency, the company's profitability will be improved.

Investment advice: due to the rise in raw materials, we lower our profit forecast, we expect the company's EPS to be 0.21 / 0.38 / 0.45 yuan respectively from 2020 to 2022, and the current stock price is 39.3x / 21.5x / 17.9x respectively corresponding to 202022 PE.

Risk tips: raw material costs fluctuate, price increases fall short of expectations, performance forecasts and valuations fall short of expectations