1H22 performance is in line with our expectations
The company announced 1H22 results: revenue 5.227 billion yuan, year-on-year + 11.7%; return to the mother net profit of 267 million yuan, year-on-year + 7.3%, the performance is in line with our expectations.
Trend of development
Aluminum packaging business is growing steadily, while tinplate packaging business is under pressure. Company 1H22 revenue increased 11.7% year-on-year, sub-business: 1) tinplate packaging: 1H22 tinplate packaging business income of 2.169 billion yuan, down 3.6% from the same period last year, mainly affected by the decline in business such as aerosol cans, metal covers, square cans, printing and coating iron, but three-piece cans, milk powder cans, steel buckets and other business still maintained steady growth. 2) Aluminum packaging: the income of 1H22's aluminum packaging business was 2.749 billion yuan, an increase of 28.4% over the same period last year. The impact of the epidemic and the conflict between Russia and Ukraine led to a slowdown in downstream demand, and sales of 1H22 two-piece cans increased by 2.5% compared with the same period last year. 3) plastic packaging: the income of 1H22's plastic packaging business is 308 million yuan, an increase of 7.8% over the same period last year.
Rising raw material prices have put some pressure on profitability. The company's 1H22 gross profit margin fell 2.3ppt to 11.9% year-on-year, which we believe is mainly affected by the rise in raw material prices, including aluminum packaging / tinplate packaging / plastic packaging business gross profit margin fell 3.5/1.1/2.7ppt to 12.1% 11.3% 14.0%. In terms of period expenses, the sales / management / financial expense rates of 1H22 changed from-0.44 to 3.8% and 0.7% respectively from the same period last year. Despite the decline in gross margin, the company's 1H22 net profit margin fell only slightly to 5.1 per cent year-on-year, thanks to the effectiveness of cost control.
The supply and demand of the two-piece can industry is improving, the packaging capacity of COFCO continues to expand, and pay attention to the changes in raw material prices and the impact of the epidemic in the short term. In recent years, with the improvement of downstream beer canning rate, led to the steady growth of demand and supply-side integration of the two-piece cans, the supply and demand pattern of the two-piece cans industry has been significantly optimized, and the capacity utilization has increased significantly, leading to the recovery of the overall profitability of the industry. The cooperation between Cofco Packaging and Coca-Cola Company, Anheuser-Busch Inbev SA, Tsing Tao Beer and other customers continues to deepen, at the same time, the production capacity continues to expand, the new plant in Shenyang starts to fill the capacity gap in the northeast region of the company, the new plant in Kunming and the second-tier project in Belgium are scheduled to start production in the second half of this year, and the third line in Chengdu is scheduled to start production in May next year. We expect that with the continuous commissioning of the company's new capacity, the company's capacity layout at home and abroad will continue to improve. Close capacity layout will further strengthen service capacity and enhance customer stickiness. The short-term epidemic and the conflict between Russia and Ukraine have a certain impact on the company's demand, while the rise in raw material prices has a certain pressure on the company's profitability, and pay attention to the recovery of demand and the change of raw material prices in the short term.
Profit forecast and valuation
The current share price corresponds to 6 times / 5 times earnings for 2022amp in 2023, respectively, leaving the earnings forecast unchanged in 2023. Maintain a neutral rating. Taking into account the impact of changes in market risk appetite, the epidemic and the conflict between Russia and Ukraine on the company's demand, the target price was lowered by 20% to HK $3.76, corresponding to a price-to-earnings ratio of 7 times / 6 times in 2023, which is 13% higher than the current share price.
Risk.
The price of raw materials fluctuated sharply; the epidemic repeatedly led to demand fluctuations; and the construction of new capacity was lower than expected.