Key points of investment

On July 12, the company released its performance forecast for the first half of 2023: the 2023H1 company is expected to achieve net profit of 0.95-115 million yuan (-68.30% ~ -61.62% year-on-year), deducting net profit of non-homecoming mothers of 0.48-068 billion yuan (-82.82% ~ -75.66% year-on-year); 2023Q2's net profit of 7.51 million yuan - 27.51 million yuan (-95.72% ~ -84.32% over the same period), deducting net profit of non-maternal income -14.83 million yuan to 5.17 million yuan (year-on-year ratio- 108.92% ~ -96.90%), Q2 digests expensive pulp & prices are under pressure, performance bottoms out, and H2 is expected to improve quarterly.

Q2 performance bottomed out due to the impact of high-priced pulp stocks and weakening of cultural paper prices

23Q2 actually digested Q1 high-priced pulp, 23Q1 broad-leaved pulp had an average price of 789 US dollars/ton (+9.24% YoY, -2.12% YoY), and the average price of coniferous pulp was 934 US dollars/ton (+21.09% yoy, -4.68% month-on-month). Although Q2 pulp prices declined month-on-month, considering inventory and transportation cycles, the actual Q2 cost was still higher than the same period last year; Q2 cultural paper prices were running under pressure, and the average price of 23Q2 double adhesive paper was 606058 yuan/ton (-1.58%, -9.50% month-on-month), copper The average price of paperboard was 5,430 yuan/ton (-2.90% YoY, -4.56% YoY). The performance of social orders for cultural paper was relatively lackluster, demand lacked favorable support, and the price of cultural paper weakened. Overall, 23Q2 company's performance was under pressure.

H2 drops too much to the bank, CCER may restart within the year, and profits are expected to improve

Q2 pulp prices have dropped significantly. 23Q2 broad-leaved pulp is 608 US dollars/ton (-19.64% YoY, -22.98% YoY), 749 US dollars/ton (-25.47% YoY, -19.77% YoY). Recently, broad-leaf pulp prices have bottomed out slightly, but large supply and demand contradictions continue to rise. H2 pulp prices may be dominated by weak consolidation. As the slurry gradually falls into storage, pulp prices are expected to stabilize, and H2 profit is expected to stabilize on July 7;, the Ministry of Ecology and Environment on the “Administrative Measures on Voluntary Greenhouse Gas Emission Reduction Transactions (Trial)” Public comments were solicited. The pace of CCER restart in 2023 is expected to accelerate, and the forestry carbon sink CCER is expected to contribute new profit growth points.

The pulp+carbon sink layout deepens, and CCER's prospects are promising

The company currently has a paper production capacity of 1 million tons and a pulp production capacity of 500,000 tons. The new 450,000 tons of cultural paper and 200,000 tons of chemical machine pulp projects continue to be constructed. The pattern is expected to be further optimized after production is put into operation. The company uses its forestry advantages and experience to develop forestry carbon sinks. By the end of 2022, it has 2 million mu of its own woodland and signed official development contracts for an area of 35.11 million mu. It is estimated that by the end of 2025, 50 million mu of forestry carbon sink contracts will be signed. The forestry carbon sink business has great potential after CCER is restarted.

Profit forecasting

Considering the orderly expansion of the company's pulp and paper production capacity, the growth curve of the forestry carbon sink business is steep after CCER was restarted. We expect the company's operating income in 23-25 to be 101.71/115.24/13.937 billion yuan, +3.98%/+13.30%/+20.95% year-on-year, and net profit of the return mother in 23-25 was 723/8.22/920 million yuan, respectively, +17.39%/+13.72%/+11.95%, corresponding EPS is 0.40/0.46/0.51 yuan, yuan In 23-25, PE was 17/15/13X, maintaining the “increase in holdings” rating.

Risk warning

There is uncertainty about the timing of CCER's restart; paper prices have fallen beyond expectations; and capacity expansion has fallen short of expectations.