Incidents. Bohui Paper released its 2024 three-quarter report. 2024Q3 achieved revenue/net profit/net profit deducted from mother of 4.705/0.018/0.01 billion yuan, a year-on-year change of -6.29%/-92.85%/-95.78%; Q1-Q3 achieved revenue/net profit/net profit deducted from non-net profit 13.967/0.149/0.119 billion yuan, a year-on-year change of +2.12%/+260.55%/+156.42%.

The decline in pulp prices compounded pressure on supply and demand, leading to a decline in revenue. The 24Q3 company achieved revenue of 4.705 billion yuan, a decrease of 6.29%. The year-on-month decline in 24Q3 pulp prices could not effectively support paper prices (24Q3 broadleaf pulp/softwood pulp prices fell 9.52/ 4.31%, respectively), and the superimposed pressure on supply and demand conditions was high (as of October 25, 2024, the capacity utilization rates of white cardboard/boxboard/double adhesive paper were 73.1%/62.88%/59.01%, respectively), which led to varying degrees of decline in paper prices, of which 24Q3 white card/softwood pulp prices fell by varying degrees/The price of double adhesive paper decreased by 2.44 %/ 11.2%/2.33%

The decline in paper prices compounded the profit of storing high-priced pulp temporarily under pressure. 2024Q3's net profit to mother/net profit after deduction was 0.018/0.01 billion yuan, a year-on-year change of -92.85%/-95.78%, gross margin/net margin was 9.79%/0.39%, -6.02/-4.66pct year on year, mainly due to the fact that high-priced pulp was put into storage while paper prices continued to decline. The 24Q3 sales/management/R&D/finance expense ratio was 1.00%/1.89%/4.12%/2.37%, a year-on-year change of +0.03/-1.09/+0.32/+0.82pct. In terms of cash flow, the company's net operating cash flow for the first three quarters of 2024 was 0.139 billion yuan, a year-on-year change of -85.30%, mainly due to a decrease in the cash received from sales products due to an increase in the proportion of bills collected, and a decrease in tax rebates received at the same time.

Investment advice: As a leader in the white card paper industry, the company will fully benefit from the new “plastic restriction order” policy. As downstream demand recovers and the company's various cost reduction and efficiency measures (reduction in the number of employees and construction of an alkali recovery system), we expect the company's net profit to be 0.19/1/1.24 billion yuan in 2024-2026, corresponding to PE of 33X/6X/5X, maintaining the “recommended” rating.

Risk warning: Downstream demand for white cardboard fell short of expectations, and raw material costs have risen sharply.