Key points of investment:
The company released its 2024 quarterly report, and its performance slightly exceeded expectations. 2024Q1 achieved revenue of 10.185 billion yuan, up 3.9% year on year, down 1.5% month on month; realized net profit of 956 million yuan, up 69% year on year, up 0.7% month on month; after deducting non-net profit of 952 million yuan, up 72.2% year on year, up 1.2% month on month.
The sharp rise in pulp and paper prices led to a year-on-month improvement in net profit in 2024Q1. 1) Cultural paper: Pulp prices continued to rebound after the Spring Festival. Combined with March-March as the traditional peak season for cultural paper, the price increase for cultural paper landed smoothly. According to Zhuochuang information, the price increase for double-adhesive paper/coated paper landed by 250/100 yuan/ton respectively in February. The company used early inventory wood pulp, and the proportion of self-produced wood pulp was relatively stable. The profit of 2024Q1 cultural paper improved month-on-month; 2) Wood pulp: affected by factors such as the recovery in demand in Europe and the US, the strike in Finland, and the explosion of the Metsa pulp mill, etc., according to factors such as the Spring Festival Zhuochuang News, broad-leaved pulp will be sold within 2-3 months/ The price of coniferous pulp rebounded by 349/583 yuan/ton respectively. According to Wind, the price of dissolved pulp increased by 200 yuan/ton in February-March, and the company's profit increased slightly month-on-month in 2024Q1; 3) Box board corrugated paper: Q1 is the low season for traditional demand for box board corrugated paper, and the price weakened. According to Zhuochuang Information, the average price of 2024Q1 box board paper/tile paper was 3833/2855 yuan/ton, respectively, down 10/72 yuan/ton from month to month, and the price of 2024Q1 corrugated paper was 1,499 yuan/ton, respectively. Decline 41 yuan/ton, combined with an increase in US waste prices, it is expected that the profit of corrugated box board will drop slightly from month to month in 2024Q1.
Looking forward to the future: Pulp prices continued to rebound after the Spring Festival in 2024 (according to Zhuochuang information, as of April 30, the softwood pulp silver star/broadleaf pulp star rose 75/90 US dollars/ton, respectively, and the inner plate conifer/broadleaf pulp rose 595/750 yuan/ton year on year respectively), the total price increase of 500 yuan for the three rounds of cultural paper landed relatively smoothly, and dissolved pulp is booming (the total price increase of 300 yuan/ton since February), and pulp profits are expected to increase. The company has sufficient advantages in its own wood pulp and wood chips, and is expected to fully benefit from the rise in paper prices. The second half of the year is the traditional peak season for box board corrugated paper, and the industry added little production capacity in the first half of the year. Supply and demand are expected to improve, helping the profit of tons of paper increase month-on-month.
Forest pulp and paper are being promoted in an integrated manner, and there is plenty of potential for growth. 1) Woodland: According to the company's 2023 annual report, the planting area of pulp forests in Laos reached 60,000 hectares at the end of 2023. In the next few years, the base will steadily advance with an additional planting scale of 1-12,000 hectares per year, and planting efforts will gradually increase in the foreseeable future. Currently, the area planted by self-managed forests and people's cooperative forests at the Lao base is about 50% each. Later, with the planting effect of local residents, their enthusiasm will gradually increase, and the planting area of people's cooperative forests will also increase accordingly. 2) Pulp and paper: By the end of 2023, the company's pulp and paper production capacity will exceed 12 million tons, and 150,000 tons of household paper is expected to be put into production in 2024Q3. Recently, the company announced the second phase of the Nanning project, which includes 400,000 tons of special paper, 350,000 tons of chemical pulp, 150,000 tons of mechanical pulp and related supporting facilities, with a total investment of no more than 7 billion dollars. The new projects are expected to continue to drive growth.
The company's multi-variety pulp and paper layout counteracts cyclical disturbances. Forest pulp and paper integrated cost optimization, countercyclical production capacity investment reaped the dividends of improving prosperity, and continued to contribute excess revenue with an excellent strategic vision. Most management has been in office for more than 20 years. Continuous equity incentives attract outstanding talents from all over the world. Team stability, cohesion and employee self-motivation are strong. Lean management improves production efficiency, and cost control is superior to peers. In the short term, the price of pulp and paper has rebounded, compounded by a rise in production capacity at the Nanning base, and an increase in wood chip production in Laos, which is expected to increase the company's profits. Maintain the company's 2024-2026 net profit forecast of 36.07/41.66/ 4.820 billion yuan, with year-on-year increases of 16.9%/15.5%/15.7% respectively. Corresponding to 2024-2026 PE was 12/10/9X, respectively, maintaining the “buy” rating!
Risk warning: There is an oversupply of new papermaking capacity, and terminal demand is recovering slowly.
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