Profit growth is in line with expectations, and the dividend rate of abundant cash flow is stable. The company's annual income reached 7.35 billion yuan in 2020, a slight increase of 0.8% over the same period last year. Thanks to the increase in gross profit margin, the company's net profit reached 390 million, an increase of 28.9% over the same period last year. If deducting the influence of Kadobao dividend income of 50 million yuan, the net profit is about 340 million, an increase of 12.3% over the same period last year, in line with expectations. The company has abundant cash flow, with an operating cash inflow of 970 million yuan in 2020, plus the recovery of 1.5 billion yuan of investment from Jiadobao, with cash on hand reaching 1.94 billion yuan. The board of directors recommends a total dividend of 310 million yuan (of which 120 million yuan is special) for the whole year, with a dividend rate of 80% (excluding the special dividend, the dividend rate will be maintained at 50%).

The income of aluminum cans affected by the epidemic decreased slightly compared with the same period last year, and double-digit growth is expected to return to production capacity in the future. The company's revenue from aluminum cans in 2020 was affected by the decline in beer and beverage demand in the first half of the year and partial shutdowns in February-March. its annual income was 3.11 billion, down 6%, and returned to positive growth of 3% in the second half of the year compared with the same period last year. However, due to the high capacity utilization rate in the past, coupled with the lack of new production capacity in 2020, the annual revenue growth rate has not turned positive. Revenue is expected to reach double-digit growth in 2021 as a number of new lines are put into production this year and production lines in Belgium return to normal production pace. In the long run, the company will continue to increase production capacity through a two-line transformation of the first plant, in order to match the increase in downstream demand brought about by the increase in beer canning rate and the increase in demand for new cans brought about by high-end technology.

Tinplate business is growing rapidly in many categories, and it is expected that the demand will still be sufficient in the future. The company's tinplate packaging income reached 3.66 billion yuan in 2020, an increase of 8% compared with the same period last year. Among them, the income of steel drums / milk powder cans / aerosol cans / metal covers / square cans / coated iron / three-piece cans was 9.6 pounds, 4.8 pounds, 5.8 pounds, 2.4 pounds, 3.1 billion yuan respectively, an increase of 9 percent over the same period last year, an increase of 9 percent, 15 percent, 26 percent, 9 percent, 10 percent, 24 percent, 45 percent, and all but three-piece cans achieved rapid growth. Revenue fell by-17% in the second half of the year. For steel drum business, the company established a joint venture with Wanhua Group in 2021, Yantai new production capacity has been put into production, and Fujian production capacity is expected to be built in the second half of this year; milk powder business, the company reached a strategic agreement with Feihe in September 2020 to supply cans for Feihe's new Harbin plant and Longjiang plant phase II; aerosol can business and metal cover business are also expected to maintain rapid growth in the more prosperous demand downstream. In addition, the revenue of the plastic packaging business was 580 million yuan in 2020, down 2% from the same period last year, and the growth rate has returned to 7% in the second half of the year.

Short-term fluctuations in raw material prices may affect gross profit margin, long-term optimistic about the improvement of the competition pattern and product structure upgrading to enhance profitability. The company's overall gross profit margin in 2020 was 15.8%, year-on-year + 0.7pct, of which the gross profit margin of aluminum packaging / tinplate / plastic business was 17.1%, 14.5% and 17.2% respectively, year-on-year + 0.6/0.5/3.8pct. Affected by the rapid rise in raw material prices, the overall gross profit margin in the second half of the year decreased 0.9pct compared with the first half of the year, and it is expected that the impact of the increase in raw material prices this year will continue, but as the pricing of most of the company's products depends on the prices of raw materials in the last quarter, the fluctuation of gross profit margin with price transmission can be controlled as a whole. For aluminum packaging business, we long-term optimistic about Longtou market share to enhance the bargaining power of the industrial chain and product structure upgrading to enhance the overall profitability. The company's sales / management expense rates in 2020 were 4.4%, 4.6%, and 0.2%, respectively, compared with the same period last year, which remained stable; the financial expense rate decreased by 0.6pct to 1.3%, mainly due to the recovery of Jiadobao investment and the reduction of financial costs.

Valuation and investment suggestions: we predict that the company's operating income from 2021 to 2023 will be 80.6company89.8 / 10.06 billion, with an increase of 9.8%, 11.4%, 12.1%, and net profit (excluding Kadobo dividends) of 3.7, 4.5, 5.2 million and 8.2%, 22.1, 16.6, respectively. We give the company a target price of HK $5.90, corresponding to 15 times PE in 2021, maintaining a "buy" rating.

Risk tips: raw material price fluctuation risk, beer canning rate increase less than expected risk, customer demand growth less than expected risk