Quzhou Wuzhou Special Paper Co.Ltd(605007) (605007)
Food packaging paper in special paper [tablesummary]. Food packaging paper is the company’s competitive product, accounting for about 56% of the total revenue in 2020. At the same time, it is also the leader in the subdivided field of food packaging paper in China. The end customers are Master Kang, uni president and other large food and beverage enterprises. Relying on the professional team with the founder as the core, the company has brought industry-leading production efficiency with its technological transformation and R & D capability. At present, the new production capacity has been improved by leaps and bounds, Enter a new round of high growth.
Special paper is a “special force” in the paper industry, which has the characteristics of high barriers and independent pricing. Compared with bulk paper products, special paper is a paper-based material, which depends on unique technology and special manufacturing at the production end, and has high requirements for customized production equipment and great technical difficulty; From the downstream point of view, the purpose is highly targeted, all kinds of products have unique performance, high degree of customer specialization and high requirements for customization, resulting in partial independent pricing of special paper in the downstream, superior value-added and cost transmission ability, not restricted by the sales radius, and finally different from bulk paper enterprises in the valuation system.
Food packaging paper is the first competition of special paper, which has benefited from the trend of replacing plastic with paper and domestic substitution for a long time. By 2019, food packaging paper products accounted for nearly 26% of the total special paper, ranking first. From 2011 to 2019, the market scale increased from 1073800 tons to 2054000 tons, and the CAGR was 8.45%, and the growth rate showed an accelerating trend. Based on the characteristics of rich raw materials and easy recycling and degradation, special paper-based materials will have three driving forces in the future, respectively from the increasingly frequent and approaching plastic restriction and plastic prohibition policy, the growth of chain fast food and new tea, as well as the extension of electronics, drug packaging and other fields. Only the alternative scenario has the incremental demand of 2-3 million tons of paper-based materials, which is a high boom and large space track in special paper.
Throughout the year, roe ranks first in the industry, and the production end has strong alpha attribute. In 2020, the roe was 25.1%, and the average roe in recent five years was about 30.5%, which continued to rank first in the industry. The high ROA was mainly determined by the production form. The company made efforts in the food packaging track with the largest space and high scenery to avoid frequent switching and changes of paper machines. The production speed and per capita profit were significantly higher than that of the industry. At the same time, the engineering R & D team with the founder as the core has strong technical transformation ability, reduces investment and production costs by importing second-hand equipment, and the company has strong alpha attribute at the production end.
The valuation is close to the historical low, the leapfrog improvement of production capacity opens the bottleneck, and the market does not give reasonable expectations for a new round of high growth and barriers. In 2021, the company’s overall on-hand capacity is 850000 tons, the capacity utilization rate of food packaging paper is full, and the capacity of grasin paper continues to climb. In addition, in December 2021, 500000 tons of high-end food packaging capacity was put into operation, and the 200000 tons of milk liquid package project is expected to be put into operation at 23h2. The company entered the centralized release period of capacity from 2021 to 2024, and its order undertaking capacity was stepped up. We estimate that the net profit attributable to the parent company from 2021 to 2023 will be RMB 429 / 696 / 922 million respectively, with a year-on-year increase of + 26.7% / 62.4% / 32.4%, and the corresponding PE will be 17.1x/10.5x/8.0x respectively. The current valuation is close to the historical low. From the perspective of industry comparison and consistent market expectations, the corresponding PE of Shandong Sun Paper Co.Ltd(002078) 2022 will be 8.2x, and the corresponding PE of Xianhe Co.Ltd(603733) in special paper in the same period will be 17.8x. Based on the strong alpha attribute and high growth, The first coverage gives a valuation of 17x in 2022 and a “buy” rating.
Risk statement
There are risks of intensified industry competition, sharp fluctuations in raw material prices, and failure of capacity construction to meet expectations.
