Incident: The company announced its 2024 quarterly report. In the first quarter of 2024, the company achieved revenue of 10.185 billion yuan, a year-on-year increase of 3.87% and a year-on-month decrease of 1.52%; during the same period, it achieved net profit of 956 million yuan, an increase of 69.04% year-on-year and a month-on-month increase of 0.74%.
First-quarter results slightly exceeded expectations, and profit levels continued to improve month-on-month. In the first quarter, the company's net profit to mother increased 0.7% month-on-month to 956 million yuan, slightly exceeding market expectations. It is estimated that the decline in the prices of raw materials such as energy and wood chips contributed to the main increase in performance, and that low price pulp inventories in the early period also contributed positively to profits. In the first quarter of 2024, the company's annualized ROE in a single quarter was 14.42%, down about 0.4 pct from month to month, mainly due to a decrease in the equity multiplier due to a decline in the company's balance ratio; during the same period, the company achieved a net interest rate to mother of 9.41%, an increase of 0.2 pct over the same period, and profitability continued to increase month-on-month.
Raw material costs declined in the first quarter, which is estimated to have contributed to the main increase in performance. Looking at the three main businesses: (1) Cultural paper: demand was weak before the Spring Festival, and the price of cultural paper declined somewhat. After the Spring Festival, along with the advent of the traditional peak season and the continuous increase in the price of superimposed pulp brought cost support, the increase in cultural paper prices came smoothly. Taken together, the profit of cultural paper is expected to be relatively stable in the first quarter of 2024. (2) Kraft board paper: Terminal demand was still weak in the first quarter, and the price trend of box board paper was weak. It is speculated that the price difference of high-end box board paper declined in the first quarter of 2024. (3) Dissolved pulp: The price of dissolved pulp remained flat month-on-month in the first quarter of 2024, and the price of broad-leaved wood chips imported from China was also relatively stable during the same period. It is estimated that the profit of dissolved pulp was basically stable month-on-month in the first quarter. Furthermore, the prices of thermal coal and wood chips fell to varying degrees in the first quarter of 2024. It is expected that the resulting decline in energy costs and homemade wood pulp costs will have a positive impact on the company's profit improvement.
Against the backdrop of rising pulp prices, the company's profit stability is outstanding, and additional production capacity opens up space for the company's medium- to long-term development. After the Spring Festival, due to factors such as a recovery in demand in Europe and the US, frequent disturbances in pulp supply, and low supply chain pulp inventory, external pulp prices continued to rise above expectations. The cost advantage of the company's homemade pulp is expected to be more fully reflected in the context of rising pulp prices, enhancing the company's profit stability. In terms of additional production capacity, the first phase of the company's 300,000 tons of household paper and post-processing products in Nanning is expected to be put into operation in the third quarter of 2024, further exploiting the advantages of local bamboo pulp resources. In addition, the company's Nanning Phase II project of 400,000 tons of specialty paper, 350,000 tons of chemical pulp, and 150,000 tons of chemical pulp is also gradually progressing. The new project is expected to open up the company's medium- to long-term development space and further consolidate its cost advantage.
We maintain our profit forecast for 2024-2026. The company's net profit for 2024-2026 is 36.40/39.92/4.493 billion yuan, corresponding BPS is 10.15/11.22/12.44 yuan, respectively, and ROE will reach 13.4%/13.4%/13.6%, respectively. Combined with the PB valuation range corresponding to historical ROE, maintain the 2024 target valuation of 1.7 times PB, corresponding to the target price of 17.25 yuan, and maintain the “buy” rating.
Risk warning
The risk that macroeconomic growth will slow and the recovery in terminal demand will fall short of expectations; the risk that the company's new pulp and paper projects will not advance as expected.