A leader in special paper-based packaging materials, a pioneer in the field of raw paper for medical and food packaging. In 2022, the company's revenue was 953 million yuan, +25.79% year-on-year, mainly due to a large increase in revenue from medical packaging base paper. The CAGR for the past three years was 17.80%. The main products covered the four major fields of medical packaging base paper, food packaging base paper, industrial specialty paper, and cigarette supporting base paper. The company followed the development trend of “paper instead of plastic” and continuously optimized the product structure, and the focus of production capacity continued to shift to the medical and food sector. The total revenue of medical and food packaging raw paper in '22 is expected to expand further, and the profit space is expected to expand further.
The specialty paper market has broad room for growth, and the volume of high-margin products continues to be released. In a situation where the overall growth rate of the paper industry is sluggish, specialty paper has shown outstanding performance. In 2020, the global market produced 2558 wt of specialty paper, and the production growth rate remained above 2%; in 2020, China's specialty paper production was 718 wt, and food wrapping paper accounted for the biggest score with 32%. Medical wrapping paper only accounted for 3% due to the high technical threshold, and the CAGR in 11-20 was 10.26%, and production continued to increase high. At present, domestic manufacturers are gradually overcoming technical problems, and in the end, the penetration rate of the sterilization model has been effectively increased. With the recovery of the fast food chain and takeout industry, public awareness of health protection has increased dramatically, and it is expected that the market for medical and food packaging materials will continue to expand in the future.
Diversified fields have gone hand in hand, and the rise of domestic goods has effectively increased market share. China's medical packaging raw paper industry started relatively late. The early market was occupied by multinational giants such as French Arjowiggins, French Sterimed, and Sweden's BillerudKorsnas. In recent years, local brands have gradually risen. The market size of leading companies is outstanding, and the brand effect is prominent. In 2020, the top five national specialty paper producers accounted for 24.44% of the market share, +1.34pct year-on-year. In order to meet the differentiated needs of customers, domestic brands such as Xianhe and Guanhao Hi-Tech continue to be deeply involved in diversified fields such as medical packaging, food packaging, and industrial specialty paper. Product quality and technical indicators have been steadily improved, and market share has been further consolidated.
The R&D side has deep reserves, a high-quality core customer base is stable, and a breakthrough in production capacity bottlenecks is imminent. As a national high-tech enterprise, the company attaches great importance to product development and technological innovation, and has mastered a number of core production processes and technologies for specialty paper. As of August '23, the company had 38 patents, including 33 invention patents. The company's R&D rate for the first three quarters of '23 was 4.01%. Based on product technology advantages, the company has established long-term and stable cooperative relationships with high-quality downstream core customers such as German League Group, Ogilvy Healthcare, and Zijiang Enterprise, and has entered the supply chain system of large fast food chain companies such as KFC, Starbucks, and Tex.
As IPO fund-raising projects continue to advance, new production lines are put into operation in an orderly manner, and production capacity is expected to continue to rise.
Profit forecast and rating: As a leader in the medical and food packaging field, the company has been deeply involved in the industry for more than 20 years, has a rich brand matrix, and is committed to providing customers with full life cycle services. At present, the company's production capacity has been released one after another, and R&D investment continues to increase. With the continuous improvement of the product structure and the diversified layout of sales channels, the net profit of the mother is expected to be 1.0/1.4/180 million in 23/24/25, respectively, an increase of 3%/44%/28% over the previous year. The corresponding PE in 23/24/25 was 34X/24X/18X respectively, covering the first time, giving it an “increased holding” rating.
Risk warning: increased market competition; raw material price fluctuations; R&D and new product development; receivables recovery risk; inventory scale expansion; estimation of subjectively related risks, etc.;