Class consumption property prominent overall packaging solution service provider. Cofco Packaging mainly sells aluminum packaging, tinplate packaging and plastic packaging, which are used in beverage, food, daily chemical and other necessary consumer goods, and the downstream demand is stable. Multi-product category coordination, to provide customers with comprehensive packaging solutions to meet customer one-stop procurement needs.
The competition pattern of the two-piece can industry is optimized, and the profit is improved upward. The two-piece can industry experienced a period of disorderly expansion. In 2014-2017, there was a serious imbalance between supply and demand, and prices fell to a trough (0.34 yuan / can) in 2016-2017. The integration of mergers and acquisitions in the industry accelerated from 2016 to 2018, and the current industry oligopoly pattern appeared. Cofco, Oruijin + Bohr, Shengxing + Pacific, Baosteel Packaging four leading groups have a market share of nearly 70%, and the leading voice has increased. The balance of supply and demand will be restored in 2018, and the unit price of two-piece cans will increase by 3% and 5% per year from 2018 to 2020. From the following three points, we believe that the prices of the two cans will continue to rise to the normal level (0.5-0.6 yuan / can): 1) the market share and bargaining power of the leading camp have increased significantly, and after about 4 years of losses, the demand for profit improvement is highly consistent; 2) the customer stickiness is strong, there is no threat of new entrants in the industry, and the pace of capacity delivery will tend to be reasonable. 3) the profit situation of downstream beer customers is in the rising channel, and the increase of canning rate helps to upgrade the downstream structure, and there is more room for price increase in two cans.
The company's two-piece can business has outstanding advantages in customer structure and production layout, strong profitability and excellent stability. The gross profit margin of the company is higher than that of comparable companies, and it fluctuates less, mainly because: 1) serving the leading enterprises in downstream industries that attach importance to outer packaging innovation and added value; 2) the proportion of high-quality foreign customers with long lock-in period and floating pricing of raw materials; 3) the layout of "single plant and two lines" and the use of advanced production equipment to improve production efficiency, national distribution of production capacity and reduce transportation costs.
The European layout sounded the bugle of the company's globalization strategy, and profit margins are expected to continue to improve. The supply and demand of two-piece cans in Europe is tight, which is 30% higher than that in China, and the profit margin of the company's two-piece cans is expected to further improve. The company established a factory in Belgium in 2018, and the customer certification work progressed smoothly in 2020. Affected by the epidemic, the factory was unable to operate at full capacity for a short time, and the follow-up orders were full. Going abroad, the company fosters global competitive advantage, and the overseas market is expected to become a new place for development in the future.
The company's three-piece can business is bound to high-quality customers, the core variety increases in volume, and there is a lot of room for price improvement. With the rapid growth of the company's income from steel drums, milk powder cans, aerosol cans and metal covers, this kind of packaging products account for a low proportion of terminal product costs, customers have low price sensitivity and high quality requirements, which gives the company enough room to increase prices. The fast-growing steel drums and milk powder cans are bound to major customers Wanhua Chemical, and the top three domestic milk powder companies, Feihe, Yili and Mengniu, to promote the layout of "factories in the factory" and follow the rapid growth of customers.
With the advantage of financing, the Jiadobao incident is solved perfectly, and the steady growth is expected. The background of state-owned enterprises superimposed on the listing of Hong Kong stocks gives the company the advantage of low-cost financing and enhances the company's profitability. The dispute between the company and Jiadobao has been resolved smoothly, and the two sides have carried out strategic cooperation. with the smooth integration of the two cans industry, profits have risen from the bottom, and performance growth is on the right track.
The cash flow of metal packaging is stable, contributing to stable dividend income. In 2019, the ROE of Cofco Packaging was 6.1%, which was higher than that of Baosteel Packaging and Shengxing, mainly due to the company's rich product range and strong profitability of two cans, which made the profit margin higher. The company has a stable cash flow performance and has maintained a higher dividend than comparable companies since 2016, with an average dividend rate of 56% in the past five years, and attaches great importance to shareholder feedback. The company has repurchased 47.49 million shares in 2020, reflecting long-term confidence.
The profit of two-piece cans has improved upward, three-piece cans have followed the growth of core customers, and the fundamentals of high-quality oversold targets have a high margin of safety. At present, the company's PB is basically at the bottom of history, and the margin of safety is high. The profit elasticity of two-piece cans is released, the new products of three-piece cans business is growing rapidly, and the consumption attribute of the company is outstanding, which is expected to maintain steady growth. We look forward to returning to Hong Kong Stock Exchange in the future, and there is more room for further upward repair of valuation.
We expect the company's net profit from 2020 to 2022 to be 37,000,000 and 490,000,000 respectively, with YOY+22.4%/+32.5%/+20.4%, corresponding to PE of 9XUnip 7XUnix 6X, giving a "buy" rating for the first time.
Risk hints: there is uncertainty about the price increase of the two cans; changes in the price of raw materials will have a certain impact on profits; and the epidemic situation in Europe is repeated.