Investment Rating - Buy rating is assigned to the company, with a target price of HKD 3.21 [4] Core Views - The company is the global leader in paper production capacity, with significant scale effects and strong upward elasticity [6] - The company's profitability is on a continuous improvement trajectory, driven by the gradual commissioning of raw material production capacity, easing of capital expenditures, and falling coal prices [2] - The company is expected to achieve net profits of RMB 676 million, RMB 1.911 billion, and RMB 2.791 billion in FY2024, FY2025, and FY2026, respectively, with significant year-on-year growth [6] Industry Overview - The boxboard and corrugated paper industry is in a weak supply-demand balance, with raw materials forming a competitive barrier [2] - Demand for boxboard and corrugated paper is slowly recovering, with economic relevance and indirect exports contributing to demand [2] - Supply-side improvements are expected in 2024, with limited new capacity additions and a focus on high-end boxboard paper [2] - The industry's operating rate is projected to be 63.6% in 2024, up 0.7 percentage points year-on-year, indicating a slight improvement in supply-demand dynamics [2] Company Analysis - The company has a leading position in the boxboard and corrugated paper industry, with a 23.4% market share in 2022 [2] - The company has a well-established domestic and overseas production base layout, with significant transportation advantages [2] - The company's raw material production capacity is gradually coming online, reshaping its integrated industrial chain advantage [2] - Capital expenditures are slowing, and capacity utilization is improving, which will help reduce depreciation and financial pressure [2] - Falling coal prices are expected to enhance the cost advantage of the company's self-owned power plants [2] Financial Projections - Revenue is expected to grow to RMB 59.832 billion, RMB 69.404 billion, and RMB 78.835 billion in FY2024, FY2025, and FY2026, respectively [3] - Net profit is projected to turn positive in FY2024, with significant growth in FY2025 and FY2026 [3] - The company's PE ratios for FY2024-2026 are estimated at 20.2x, 7.1x, and 4.9x, respectively, with a PB ratio of 0.31x, indicating undervaluation [6] Key Assumptions - Sales volume is expected to grow steadily, reaching 19.22 million tons, 21.21 million tons, and 23.37 million tons in FY2024-2026, respectively [9] - Gross margins are projected to improve, reaching 9.3%, 10.7%, and 11.3% in FY2024-2026, respectively [9] - Tonnage profits are expected to increase, with tonnage gross profits of RMB 289, RMB 350, and RMB 382 in FY2024-2026, respectively [9] Differentiating Factors - The market has overlooked the company's operational improvements, focusing more on industry beta [10] - The company's high-profit product mix is gradually increasing, and its product matrix is becoming more diversified, which will enhance profitability and stability [10] - Capital expenditures are expected to slow after FY2024, and the debt-to-asset ratio is projected to improve starting in FY2025 [10] - Falling coal prices will enhance the cost advantage of the company's self-owned power plants [10]
浆纸一体、优势重铸，造纸龙头涅槃重生