Incidents:
Sun Paper released its 2024 quarterly report: 2024Q1 achieved revenue of 10.185 billion yuan, +3.87% year over year, realized net profit of 956 million yuan, +69.04% year over year, and realized net profit of 952 million without return to mother, +72.22% year over year. Q1 The performance was outstanding, production capacity was expanded in an orderly manner, and the integration of Lin Pulp and Paper showed strong α.
The price increase of cultural paper was successfully implemented, and Q1 revenue grew steadily
2024Q1's revenue was +3.9% YoY, maintaining steady growth. The top two accounts for the company's revenue in the 2023 annual report were cultural paper (33.7%) and kraft box board paper (24.8%). By business, 1) Cultural paper:
According to Steel Union data, as of March 29, the price of double adhesive paper/double copper paper was +3.5%/+1.8% month-on-month compared to after the Spring Festival. Demand for cultural paper picked up after the Spring Festival, and the price increase was successfully implemented, supporting the company's revenue growth; 2) Box board paper: the conflict between supply and demand in the industry still exists, and the price side is under pressure. The company has wood chips and semi-chemical pulp products as new fiber raw materials to replace waste paper. The cost advantage is obvious and the impact is small.
Profitability performance is impressive, and performance has achieved rapid growth
The company's Q1 gross margin was +4.48pct year-on-year to 17.99%. It is estimated mainly due to: 1) rising demand for cultural paper on the revenue side and high pulp prices; 2) on the cost side, pulp inventory purchased at low prices in the early stages provides low-cost support. On the cost side, the sales/management/R&D/finance expense ratio was +0.06/-0.13/-0.05/-0.21pct year on year, a total of -0.32pct year over year, improving operational capacity. Under the combined influence, the company's Q1 net profit margin reached 9.39%, +3.62 pct year-on-year. The company's integrated forest pulp and paper project continues to advance, the self-sufficiency rate for wood chips and wood pulp continues to increase, and its cost control capability is superior to that of peers, which is expected to smooth out short-term cost-side fluctuations.
Production capacity expansion is progressing in an orderly manner, and long-term growth is worth looking forward to
In terms of pulp and paper production capacity construction, 1) the company launched a household paper project with an annual production capacity of not more than 1.35 billion yuan in October 2023, with a total investment of no more than 1.35 billion yuan; 2) On April 9, 2024, the company announced that it plans to invest no more than 7 billion yuan to build the second phase of the Nanning project, including 400,000 tons of special paper, 350,000 tons of bleached chemical wood pulp production line and related supporting facilities. The company's future projects will be gradually implemented and put into operation according to the plan, which will effectively promote the continuous improvement of pulp and paper production capacity, enrich the product matrix, and lay the foundation for medium- to long-term sustainable development.
Paper industry leaders continue to lead the way and maintain a “buy” rating
The company performed well in the first quarter report, and profits increased significantly. Over the long term, the production capacity layout is progressing in an orderly manner, and the leading position continues to be consolidated. We expect revenue for 2024-2026 to be 454.99/493.24/52.43 billion, respectively, +15.06%/+8.41%/+6.30% year over year; net profit to mother is 37.97/42.54/4.638 billion, respectively, +23.05%/+12.04%/+9.01%, EPS is 1.36/1.52/1.66 yuan respectively, and 3-year CAGR is 14.55%. The company's comprehensive competitive advantage has created a long-term moat. We gave 2024 14 times PE, corresponding to a target price of 19.02 yuan, and maintained a “buy” rating.
Risk warning: risk of fluctuations in raw material prices; risk of operations falling short of expectations; risk of delayed production capacity investment.