Description of the event

2024Q1 achieved revenue/net profit/net profit deducted from mother of 101.85/956/952 billion yuan, an increase of 4%/69%/72% over the same period.

Incident comments

Q1 The profit of cultural paper and pulp increased, driving a month-on-month increase in performance. Revenue is basically flat month-on-month, sales are expected to drop slightly month-on-month (Q1 Spring Festival factor), and product prices have increased slightly. 1) Cultural paper: Two consecutive rounds of 200 yuan price increase letters were issued in March and April. It is expected that the basic price increase for Sun products will be implemented, but considering the increase in pulp costs, the profit of 2024Q1 cultural paper tons is expected to increase slightly month-on-month; 2) Dissolved pulp and exported wood pulp: 2024Q1 benefits from the rise in market pulp prices (from the beginning of January to the end of March, the tonnage price of dissolving pulp/internal pan chemical broadleaf pulp increased by about 100/600 yuan). It is expected that the profit benefit per ton will increase sequentially, and Laos still has the cost advantage of self-produced wood chips; 3): 2024Q1 industry The boom is weak. From the beginning of January to the end of March, the tonnage price of the boxboard paper market fell by about 100-150 yuan. The profit per ton of the Shandong base is expected to weaken month-on-month. The profit of the Laos base is still under pressure due to high-priced US waste tons. The increase in the high-end ratio of the Nanning base led to a slight month-on-month improvement in ton profit; 4) Other products:

The profit of coated raw paper tons is expected to improve month-on-month, and the profit of household paper tons will be maintained month-on-month.

Q2 outlook: Pulp prices are strong in the short term, slurry inventories lock in costs ahead of schedule, and profits are rising steadily from month to month. Short-term pulp prices are still strong. Overseas pulp mills have announced a new round of price increases. Since Q2, the tonnage prices for internal plate dissolved pulp and internal plate chemical broadleaf pulp have all risen by about 100 yuan. It is expected that Q2 will maintain a good level of profit in export pulp tons. However, with subsequent increases in overseas wood pulp production capacity and domestic homemade pulp, there is still some pressure on pulp prices in the second half of the year. The second quarter is a low season for papermaking. The pace of price increases remains to be seen: 1) Cultural paper:

The Sun's April 200 yuan price increase letter is expected to basically be implemented, and industry prices have been under slight pressure since mid-April; 2) Box board paper: Currently, the industry is still under pressure. Paper prices have declined slightly since mid-April, and subsequent “618” e-commerce activities are expected to improve demand.

Medium- to long-term outlook: steady expansion of production capacity, continued strengthening of cost advantages, and continuous improvement of profit centers.

1) At the level of new production capacity, 300,000 tons of household paper at the Nanning base are expected to be tested one after another, adding the release of 1 million tons of box board paper production capacity put into operation in 2023Q3, and total sales are expected to increase by double digits in 2024. Furthermore, the company announced that Nanning (Phase II) plans to build 400,000 tons of special paper, 350,000 tons of bleaching chemical paste, and 150,000 tons of machine pulp. The production time is yet to be determined. The capital expenditure is expected to be lower than in recent years, which is expected to drive up the dividend ratio.

2) At the cost advantage level, Laos currently holds 60,000 hectares of woodland cultivation, and plans to add 1-12,000 hectares every year in the next few years. Profits from self-produced wood chips will gradually be realized, driving an increase in the overall profit center per ton.

The three major bases in Shandong, Guangxi, and Laos collaborated to expand production in a procyclical and steady manner. The company's performance flexibility is expected. Net profit from 2024-2026 is estimated to be 37.7/41.8/4.49 billion yuan, which is equivalent to 12/10/10 times PE.

Risk warning

1. The industry's new production capacity has increased dramatically;

2. Prices of raw materials fluctuate greatly.