Matters:
The company released its 2023 annual report and 2024 quarterly report. In 23, the company achieved revenue of 18.69 billion yuan (+1.8% YoY), net profit attributable to mother of 180 million yuan (-20.3% YoY), and net profit of 120 million yuan (-45.4% YoY) after deducting net profit not attributable to mother. In 24Q1, the company achieved revenue of 4.4 billion yuan (+5.7% YoY), net profit attributable to mother of 100 million yuan (YoY +120.2%), and net profit of 90 million yuan (YoY +117.3%) after deducting non-attributable net profit.
Commentary:
Cultural paper production capacity has been released centrally, and downstream demand is gradually picking up. 1) White cardboard: Achieved revenue of 11.94 billion yuan in 23 years, -8.9% YoY, and +9.5%/-16.8% YoY in volume and price, respectively. Among them, social cards and food cards benefited from downstream customer packaging upgrades, and sales rebounded markedly; cigarette cards clearly went to storage in the first half of '23, and the market gradually returned to the right track in the second half of the year; while copper cards were steadily repaired with the help of the recovery of the exhibition industry and export growth. 2) Cultural paper: Achieved revenue of 4.25 billion yuan in 23 years, +105.9% YoY, and +124.9%/-8.4% YoY in volume and price, respectively. Demand for cultural paper is relatively stable. The company's new production capacity climbed smoothly in '23. During the peak sales season for cultural paper in 24Q2, it is expected that demand for teaching aids, party building materials, etc. will still provide stable support. 3) Box board paper: Achieved revenue of 1.83 billion yuan in 23 years, -11.2% year-on-year, and volume and price +7.2%/-17.1%, respectively. 4) Gypsum protective paper: Achieved revenue of 470 million yuan in 23 years, -10.7% year-on-year, and volume and price +4.9%/-14.9%, respectively.
Profitability has been restored, and expenses are well controlled. 1) In '23, the industry's white card production capacity was concentrated, and the increase in supply led to price pressure. The gross margin of white card paper was 2.7 pcts to 10.9%; while the decline in pulp costs led to an improvement in the profitability of products such as cultural paper, box board paper, and gypsum protective paper, the gross margin was +4.9/+2.6/+2.1pcts to 12.5%/5.2%/15.2%, respectively; under the combined impact, the company's gross margin fell 0.8 pcts to 10.8%. On the expense side, the sales/management/finance expense ratios were 1.0%/3.0%/2.4%, respectively, compared with +0.3/-0.04/+0.6pcts, which remained stable. As a result, the company achieved a net interest rate of 1.0% to mother in '23, -0.3 pcts year over year. 2) In 24Q1, the company achieved gross profit margin of 13.3%, +17.9pcs/month-on-month; on the cost side, sales/management/finance expense ratios were 1.1%/3.3%/2.1%, respectively, and -0.1/-0.5/-1.3 pcts year over year. Overall, the company achieved a net interest rate of 2.3% to mother in 24Q1, turning a year-on-year loss into a profit.
Differentiate product design and gradually improve production capacity layout. The company accelerated the 800,000-ton high-grade special cardboard expansion project to produce all-wood pulp zero-plastic paper cup base paper, high-end social card paper, and high-end cigarette card paper; at the same time, it also develops new types of paper products such as coated cow cards, natural colored paper cup paper, water-free high-grade paper cups, high-grade dinner plate cards, eye protection paper, Oriental book paper, pure paper, etc., and the differentiated product matrix is gradually improving. On the cost side, the company will make full use of the “forest pulp and paper integration” raw material advantages of major shareholders to mitigate the risk of fluctuations in the cost of bulk raw materials such as wood pulp and wood chips, and is expected to achieve a steady increase in profitability.
Investment advice: The company is a leader in the white cardboard industry and operates steadily; it is optimistic that its market share may increase further after new production capacity is launched. Considering that the white cardboard industry is still under high pressure to increase production capacity and lower the profit forecast, we expect the company's net profit to be 6.54/9.57/1,233 million yuan in 2024-2026 (the value was 1,266.1.504 billion yuan before 24/25), corresponding to the current stock price PE 12/8/7 times. Using the DCF valuation method, the company was given a target price of 7.7 yuan/share to maintain the “recommended” rating.
Risk warning: Raw material costs fluctuate greatly, market competition intensified, etc.