Domestic two-piece tank faucet, production capacity continues to expand. The company is a leading domestic two-piece packaging company and has established stable cooperative relationships with well-known FMCG customers such as Coca Cola, Pepsi, Budweiser, Tsingtao Brewery, and Wang Laoji. In 2019, the company focused on strategic goals such as “two-wheel drive” and “internal and external linkage”, and actively built C-end and overseas business growth curves. In 2017-2022, the company's revenue CAGR was 9.3%, and net profit CAGR attributable to mother was 39.2%. In terms of production capacity layout, the company has now formed a national radioactive production base, and has two-piece can production bases in Vietnam, Cambodia, and Malaysia.

The industry space is broad, and pattern optimization accelerates profit recovery. 1) Another rock: In 2023, the volume of beverage cans shipped in North America was 136 billion cans, and the excess production capacity is expected to begin to ease in 2025; in 2023, Bol's market share in North America/EMEA/South America was 36%/39%/46%, respectively. With “global bargaining power+vertical extension of the value chain+financial leverage”, Pol's gross margin/net profit margin/ROE hub reached 20%/5%/19% respectively. 2) Domestic market: Driven by the increase in the beer canning rate, we estimate that the overall demand for two-piece cans in 2021-2025 is about 2.3%; the overall supply of China's metal packaging industry exceeds demand. It is expected that with the acceleration of industry integration and the gradual easing of overcapacity in 25, profitability is expected to continue to recover.

Global layout of production capacity, forward-looking layout of production capacity in Southeast Asia. 1) Customer side: The company adopts a “close to customer layout” method of building a factory, and the average length of cooperation with major customers exceeds 17 years; 2) In terms of production capacity:

With production lines in Anhui and Guizhou being put into operation one after another, the company has formed a national production capacity layout; during the period 2012-2024, the company successively invested in the construction of a two-piece tank with a production capacity of 4.2 billion tanks in Vietnam, Malaysia, and Cambodia. In June 2024, the company announced that it will invest in the construction of a new production line with an annual output of 0.8 billion cans in Hue, Vietnam. The new project is expected to be put into operation in 2026H1.

The advantages of state-owned enterprises are prominent, and cost reduction and efficiency are remarkable. The company continues to promote the construction of the industry's first smart factory and completed the “Three Smart” system (smart ecology, smart operation, smart manufacturing) plan in 2020. In 2012-2023, the company's per capita income increased from 2.311 million yuan to 5.694 million yuan (CAGR of 8.5%), and per capita profit generation was ahead of comparable companies in the industry. Under the advantages of lean management & credit control, the company's financial expense ratio in 2023 was lower than that of Orekin/Shengxing Corporation/COFCO Packaging, 1.7pct/0.8pct/2.1pct.

Profit forecast: In 2024-2026, the company's net profit to mother is expected to be 0.27, 0.35, and 0.46 billion yuan, respectively, and the corresponding PE valuations are 19.5X, 14.8X, and 11.5X. Considering the characteristics of the industry's “heavy capital expense+full competition+high debt ratio”, we adopted the EV/EBITDA valuation method. The company's EBITDA is expected to be 0.76, 0.91, and 1.08 billion yuan in 2024-2026, respectively, and the corresponding EV/EBITDA valuations are 7.8X, 6.5X, and 5.1X. The average valuation of comparable companies in 2024 was 7.9X. Considering that the company is in a period of global expansion, overseas production capacity layout and production efficiency are ahead of domestic comparable companies, covered for the first time, and given a “buy” rating.

Risk warning: Production capacity investment falls short of expectations, fluctuating raw material prices, fluctuating RMB exchange rate, and risk of measurement errors.