Incident: Xianhe Co., Ltd. released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 8.553 billion yuan, a year-on-year increase of 10.53%; net profit to mother of 664 million yuan, a year-on-year decrease of 6.55%; net profit after deducting net income of 595 million yuan, an increase of 6.81% over the previous year. Among them, in the 2023Q4 single quarter, the company achieved revenue of 2,341 billion yuan, a year-on-year increase of 5.05%; net profit to mother was 282 million yuan, an increase of 96.74%; and net profit after deduction was 280 million yuan, an increase of 196.02% over the previous year.
In addition, the 2024Q1 company achieved revenue of 2,209 billion yuan in a single quarter, up 20.22% year on year; net profit to mother of 269 million yuan, up 120.14% year on year; net profit after deduction of 237 million yuan, up 105.97% year on year.
On May 9, the company announced the actual controller's plan to increase the company's share holdings. Wang Minwen, one of the actual controllers, plans to use his own capital to increase the company's A shares within 6 months from May 9, 2024. The cumulative amount of shares to be increased is not less than 30 million yuan and no more than 50 million yuan.
The leading specialty paper enterprise is stable, and the forest pulp and paper integration project is progressing smoothly by product. In 2023, daily consumption/food and medical packaging materials/commercial and publishing printing materials/tobacco industry support/electrical and industrial paper/special pulp paper and other series achieved revenue of 41.07/17.32/7.12/6.81/0.62 billion yuan respectively, up to +15.49/+14.62/-7.97/+0.83/+17.93/ -59.35%; by region, achieved in 2023, respectively Revenue was $7.532/574 million, +11.23/ -5.05% year-on-year, respectively.
Through technical and process cooperation with well-known enterprises at home and abroad, the company has increased technical research and development work for various paper products, and many new technical products such as high-cleanliness release paper, high-voltage electrolytic capacitor paper, and light blue spunlace non-woven base paper have been created to accelerate the production process of plastic products using paper instead of paper.
In terms of production capacity, the company's fund-raising project of 300,000 tons of food cardboard was officially put into operation in April 23, speeding up the pace of improvement of the food paper-based packaging material industry chain. The total production period was more than 7 months, with a total output of 119,700 tons. The sales volume reached 105,700 tons at the same time, gradually meeting the market's demand for high-end food card performance through product optimization and upgrading and improving the superior characteristics of the product. In addition, the company is seizing resources in Guangxi and Hubei to build an integrated “forest, pulp, paper, and use” industrial chain. At the beginning of 2024, the first phase of the Hubei pulp and paper project has already been put into trial operation, and the first phase of the Guangxi project will also be put into operation in mid-2024. The new production capacity of the project is gradually realized in the market. It is expected that the market share will rise again, and the long-term growth momentum is sufficient. Furthermore, according to the announcement of the company's actual controller's plan to increase the company's share holdings, the company's confidence and good expectations for future development prospects are shown.
The decline in raw materials has led to an improvement in profits, and a steady increase in performance
In terms of profitability, the company's gross margin in 2023 was 11.64%, up 11.62 pct year on year, and the gross margin for the 23Q4 single quarter was 18.05%, up 9.14 pct year on year. The gross margin for the 24Q1 quarter was 18.01%, up 8.00pct year on year, mainly due to the year-on-year decline in raw wood pulp prices. Among them, the gross margins of daily consumption/food and medical packaging materials/commercial and publishing printing materials/tobacco industry supply/electrical and industrial paper/special pulp paper and other series products were 10.98%/6.92%/14.29%/16.48%/14.25%/20.52%, respectively, +0.98/-4.75/+2.49/+1.33/-0.05/+13.04pct, respectively. In terms of period expenses, the company's expenses rate for the 2023 period was 5.54%, up 1.38pct year on year. Sales/management/R&D/finance expenses were 0.28%/1.72%/1.32%/2.13%, respectively, +0.04/+0.11/-0.02/+1.25pct, respectively. Among them, the 2023Q4 company's cost rate for a single quarter was 5.24%, up 1.50pct year on year, and the sales/management/ R&D/finance expenses ratio was 0.55%/1.87%/1.61%/1.21%, respectively, +0.12/+0.43/+0.46/+0.48pct, respectively.
The cost rate for the 24Q1 period was 5.69%, up 1.32pct year on year, and the sales/management/R&D/finance ratio was 0.24%/1.56%/1.34%/2.55%, respectively, -0.05/-0.20/+0.07/+1.50pct, respectively.
Under the combined influence, 23 net interest rate was 7.80%, down 1.44pct year on year; 23Q4 company's net interest rate was 12.08%, up 5.61 pct year on year; 24Q1 company's net interest rate was 12.25%, up 5.58 pct year on year.
Investment proposal: As a leading leader in the specialty paper industry, Xianhe Co., Ltd. has a diverse product matrix and continues to increase the high growth circuit of downstream food and medical packaging materials. The integration process of Guangxi and Hubei pulp and paper has been successfully accompanied by the continuous investment of new production capacity, and performance growth can be expected. We expect the 2024-2026 operating income of Xianhe Co., Ltd. to be 100.35, 118.19, 13.561 billion yuan, up 17.32%, 17.78%, and 14.73% year on year; net profit to mother will be 10.45, 13.62, and 1,572 billion yuan, up 57.40%, 30.31%, and 15.45% year over year, corresponding PE is 13.5x, 10.3x, 8.9x, and the target price will be 27.10 yuan, maintaining the buy-A investment rating.
Risk warning: risk of fluctuations in raw materials and energy prices; risk of fluctuations in paper prices and pulp prices; risk of product demand growth falling short of expectations; risk of increased industry competition; risk of capacity expansion falling short of expectations.