Incident 1: The company announced its 2023 annual report. In 2023, the company achieved operating income of 29.333 billion yuan, a year-on-year decrease of 13.76%, and achieved net profit of 156 million yuan to mother during the same period, reversing the year-on-year loss.
Incident 2: The company announced its 2024 quarterly report. In the first quarter of 2024, the company achieved revenue of 6.669 billion yuan, a year-on-year increase of 5.00%, and achieved net profit to mother of 39 million yuan during the same period, reversing the year-on-year loss.
Weak paper prices affected revenue growth in the short term, and earnings turned positive in the second half of 2023. In terms of revenue by business, the company's papermaking/packaging/trading/other main business revenue in 2023 was 192.41/70.80/21.24/238 billion yuan, respectively; in terms of paper split volume and price, the company's base paper sales volume and average price in 2023 were +10% and -20% year-on-year respectively. Against the backdrop of increased production capacity in the industry, a sharp increase in imported paper, and relatively weak demand, the average price of box board paper and corrugated paper decreased by 16% year on year (Zhuochuang caliber) and 19%, respectively. On the profit side, the company achieved net profit of 156 million yuan in 2023, slightly higher than the performance forecast limit. The profit after deducting non-recurring profit and loss was -298 million yuan, of which net profit after deducting non-recurring profit and loss in the first quarter was -3.77/-0.59/0.77/60 billion yuan, along with the gradual elimination of the company's finished paper inventory, compounded by improved market demand during the peak season, which led to a slight recovery in paper prices. The company's profit improved in the second half of the year. The company's revenue increased 5.00% year on year in the first quarter of 2024. It is estimated that sales volume increased year on year after the new production capacity was put into operation, and net profit without return to mother was achieved in the first quarter of the year. It is estimated that mainly due to the suspension of paper machine production during the Spring Festival, there was some negative impact on profits.
Earnings improved year over year in 2023. In 2023, the company's gross margin reached 9.87%, an increase of about 2.6 pct over the previous year, mainly due to the year-on-year decline in the purchase price of waste paper, the price of chemical excipients, and energy costs. On the cost side, in 2023, the company's sales/management/R&D/finance expense ratios increased by 0.1/0.2/0.4/1.1 pct, respectively. It is estimated that the main revenue scale of the increase in the cost ratio decreased year on year. In 2023, the company's net profit margin was 0.53%, up 7.2pct year-on-year. The company's gross profit margin and net profit margin for the first quarter of 2024 were 9.88% and 0.59% respectively, a marked improvement over the same period in 2023, and declined slightly from month to month due to seasonal effects.
The implementation of the new employee stock ownership plan is expected to further stimulate employee enthusiasm. On May 10, 2024, the company released a draft of the new employee stock ownership plan. The number of employees participating in the current employee stock ownership plan was no more than 1,600, the share repurchase price was 1.67 yuan/share, and the number of shares was 60.4 million shares (accounting for 1.35% of the current company's share capital). Among them, the subscription ratio for core executives was about 2.15%, and the subscription ratio for other personnel was 97.85%. This employee stock ownership plan covers a wide range of areas and helps stimulate employee motivation.
Adjusting the revenue and gross margin assumptions appropriately, we forecast that the company's net profit due to mother for 2024-2026 will be $548/7.71/1,051 million yuan, respectively (previously estimated 2024-2025 was 1,08/1,481 billion yuan), corresponding to the DCF valuation of 2.09 yuan, maintaining the “gain” rating.
Risk warning
The risk that downstream consumer demand will fall short of expectations; the risk of large fluctuations in raw material prices; the risk that additional production capacity will fall short of expectations; and the risk of increased competition in the industry.