Matters:
The company released its 2024 semi-annual report. 24H1 achieved revenue/net profit without return to mother of 3.43/0.23/0.22 billion yuan, YoY +20.8%/year-on-year loss to profit/year-on-year profit; 24Q2 achieved revenue/net profit after deduction of 1.77/0.1/0.09 billion yuan, YoY +7.7%/+626.4%.
Commentary:
Increased production capacity is climbing, and export sales are superior to domestic sales. The company added 0.022 million tons of transfer printing paper, 0.018 million tons of drawing paper, and 0.035 million tons of industrial liner production capacity in 2023. The product matrix showed a diversified trend. 24H1, the company achieved 0.581 million tons of mechanical paper production, +20.6% year over year; sales volume 0.566 million tons, +32.8% year over year. Benefiting from increased production capacity, the first half of the year achieved revenue of 16.0 (YOY +12.8%), 1.18, 0.51, and 0.14 billion yuan for food packaging, daily consumption, publishing and printing, and industrial supporting series paper, respectively. By region, the company achieved revenue of 2.94/0.49 billion yuan domestic/overseas respectively, +18.2%/+38.7% year-on-year, and the export share increased steadily.
Profitability has improved, and cost rate control is good. 1) At 24H1, the company achieved a gross profit margin of 12.1%, +6.8pcts compared to the same period last year, mainly because the price of wood pulp raw materials decreased compared to the same period last year, and the company continued to promote cost reduction and efficiency efforts to optimize production costs. By the first half of the year, the company had basically achieved a balance between food white cardboard and cultural pulp paper, and profitability is expected to be further optimized. On the expense side, the company achieved sales/management/finance expense ratios of 0.2%/1.4%/1.7%, respectively, -0.02/+0.1/+0.03pcts year over year; taken together, the company achieved a net interest rate of 6.8% to mother, turning a loss into a profit year over year. 2) In 24Q2, the company achieved a gross profit margin of 11.2%, +4.5 pcts year over year and -1.7 pcts month over month. The gross margin fell month-on-month or was mainly due to the strengthening of external market pulp prices in Q2, suppressing profitability. On the cost side, the company achieved sales/management/finance expense ratios of 0.2%/1.3%/1.6%, respectively, -0.1/+0.3/-0.2pcts; the comprehensive impact on the company's net interest rate to mother was +4.7pcts to 5.8%.
The scale of production capacity has been expanded in an orderly manner, and the integration of pulp and paper is progressing smoothly. The company is promoting the expansion of raw paper production capacity in an orderly manner. As of August 15, the company has built 15 production lines, with a total design capacity of 2.096 million tons; of these, food wrapping paper production capacity is 0.78 million tons, daily consumption series production capacity is 0.301 million tons, cultural paper production capacity is 0.3 million tons, and industrial supporting material series is 0.035 million tons. In addition, the 0.3 million ton slurry production line at the Jiangxi base was put into operation in 24q1, and the 0.6 million ton chemical slurry production line is also gradually being promoted, or the company's raw material supply is further optimized in line with the integrated pulp and paper strategy. The gross margin is expected to continue to improve.
Investment advice: As a leading specialty paper company, new production capacity is steadily expanding. We are optimistic about the company's future performance growth. Therefore, the company's net profit from 2024-2026 is estimated to be 0.536/0.706/0.814 billion yuan, and the corresponding PE is 9/7/6X. Referring to comparable company valuations, the company was given a 2024 12X valuation, corresponding to a target price of 15.9 yuan/share, maintaining a “strong” rating.
Risk warning: Raw material costs fluctuate greatly, market competition intensified, etc.