Core view
Event: Recently, wood pulp paper (cultural paper and white cardboard) issued a price increase letter, which increased by 300 yuan / ton in March.
It is expected that the letter of price increase will have a high probability of landing. This round of price increase is a price increase driven by rising costs under the background of improving supply and demand. ① Supply: affected by the high price of overseas strike paper, logistics and other factors, the export volume of domestic paper has increased recently, the marginal import volume has decreased, and the supply is expected to decrease by 3-5%. ② Demand: the demand side of the Chinese market is relatively flat, with little improvement. ③ Raw material and energy costs: the price of pulp has risen (refer to pulp futures for the leading indicators, and the settlement price has increased by about 20% since mid and late December 2021). The high prices of coal, electricity, steam and chemical industry constitute the cost side support. ④ Inventory: the inventory of the industrial chain is low (the downstream inventory is low due to the impact of pessimistic expectations such as price decline in the early stage). ⑤ Current profitability: in 2021q4, some listed companies have suffered losses, and small cultural paper enterprises are in the shutdown state of loss cash flow. Before this round of price rise, the profitability of the industry was at the bottom of history.
At this stage, the current round of price increase is defined as the profit repair at the bottom of the cycle, rather than the large cycle level at the beginning of 2021. Unlike the rapid rise of paper prices in the first quarter of 2021 driven by pulp futures and accelerating the upward rise of raw material prices, this round of price rise in the small peak season in spring is more a profit repair at the bottom of the cycle, which is the result of the superposition of cost support for the improvement of the margin of supply and demand, and the overall rhythm is relatively more moderate. With the gradual implementation of price increase, the industry profit is expected to increase gradually.
Considering that the market pays less attention to the sector in the early stage, the adjustment time of leading targets is long, and the valuation and repair power of leading enterprises driven by the improvement of fundamentals is also strong. Since the middle of April 2021, under the impact of imports, the price of cultural paper has fallen rapidly from the previous high. In the second half of 2021, due to the weak overseas demand, the import repression at the supply side and the poor supply and demand, the cost pressure cannot be transmitted smoothly, and the price and profit are relatively low. In the near future, due to the improvement of the margin of supply and demand, the promotion of cost rise and other factors, the price increase is expected to be implemented. Considering the low attention of the market to the sector in the early stage and the long adjustment time of leading targets, the superposition of fundamental improvement and valuation can be expected to repair the market.
Investment proposal and investment object
It is suggested to focus on Shandong Sun Paper Co.Ltd(002078) (002078, buy) (it is predicted that the net profit attributable to the parent company from 2021 to 2023 will reach RMB 2.989/30.80/3090 billion according to the conservative situation; the company previously issued the equity incentive plan, and the net profit target of equity incentive in 2022 is RMB 2.75 billion), and it is suggested to pay attention to Shandong Bohui Paper Industry Co.Ltd(600966) (600966, not rated) and Shandong Chenming Paper Holdings Limited(000488) (000488, not rated).
Risk tips
Economic growth slowed down and terminal demand fell faster than expected; Risk that the promotion of new pulp and paper projects of key companies does not meet expectations
