YUTO PACKAGING TECHNOLOGY(002831):PROFITABILITY CONTINUES TO IMPROVE IN 2Q22;DIVERSIFIED BUSINESSES PROGRESSING STEADILY

类别:公司 机构:中国国际金融股份有限公司 研究员:Junhao FAN/Zhengfu LIU/Peihang LV 日期:2022-08-26

1H22 earnings in line with our expectation

    Yuto Packaging Technology announced 1H22 results: Revenue grew 18.2% YoY to Rmb7.15bn, net profit attributable to shareholders rose 41.6% YoY to Rmb476mn, and recurring net profit attributable to shareholders grew 88.9% YoY to Rmb498mn, in line with our expectations.

    Yuto’s revenue grew 26.0% YoY to Rmb3.35bn in 1Q22 and 12.0% YoY to Rmb3.8bn in 2Q22, and its net profit attributable to shareholders rose 32.7% YoY to Rmb221mn in 1Q22 and 50.4% YoY to Rmb255mn in 2Q22.

    Trends to watch

    Revenue growing steadily; expanding boundaries of businesses. Yuto’s revenue increased by 18.2% YoY in 1H22. Despite COVID-19 resurgence and pressure on demand in the consumer electronics industry, the company’s revenue still maintained steady growth. The company’s revenue from the consumer electronics packaging business increased by 15.9% YoY to Rmb4.58bn, and the firm further strengthened cooperation with customers. Revenue from environmentally-friendly paper and plastic products increased by 88.8% YoY to Rmb484mn. In July 2022, the company announced plans to acquire a 60% stake in Wabony and expand its presence into the acoustic products and catering service robot industries, which we think may generate notable synergies with customers of its major businesses and its production capacity, and could further expand the boundaries of its businesses.

    Profitability continues to improve. In 1H22, Yuto’s gross profit margin increased by 0.2ppt YoY to 21.1%, mainly due to the improvement of the company's business structure and declining raw material prices, in our view. The share of revenue from the highly profitable environmentally-friendly paper and plastic product business in the company’s total revenue increased by 2.5ppt YoY to 6.8%. In terms of expenses, the company’s selling expense ratio, G&A expense ratio, financial expense ratio, and R&D expense ratio fell 0.37ppt, 1.10ppt, 1.55ppt, and 0.64ppt YoY to 2.38%, 5.50%, -0.35%, and 3.86%. Changes in foreign exchange rate made a considerable contribution to the improvement of the company’s financial expenses. Thanks to improvement in gross profit margin and expense control, Yuto’s net profit margin (based on net profit attributable to shareholders) increased by 1.1ppt YoY to 6.65% in 1H22, with profitability improving further.

    Optimistic about the company's revenue and profit growth. Revenue: The company’s consumer electronics packaging business has achieved steady growth by strengthening cooperation with existing customers and attracting new customers. Meanwhile, we think the cigarette, alcoholic beverage, and environmentally-friendly packaging industries have considerable growth potential with industry consolidation ongoing. We believe Yuto enjoys clear advantages in production capacity, product designs, and manufacturing for these industries, and we expect its new businesses to continue to grow rapidly and its businesses to be further diversified in the future. Profits: In 2022, prices of upstream packaging paper products have fallen markedly YoY, easing the company's cost pressure. Meanwhile, a rising proportion of high-profit-margin businesses (e.g., environmentally-friendly paper and plastic products, and alcoholic beverage packaging) continued to optimize the company’s business structure. In addition, the company is making smooth progress in intelligent production. The company’s intelligent factory in Xuchang has been fully put into operation in 1H22, its intelligent factory in Hefei has been completed and put into operation, its efforts to build the first phase of its intelligent factory in Wuhan have paid off, and it plans to build an intelligent factory in Hunan. We believe that the company’s efforts to build intelligent production facilities could help it substantially improve production efficiency, reduce labor costs, and further boost its profitability.

    Financials and valuation

    We keep our 2022 and 2023 earnings forecasts unchanged. The stock is trading at 17x 2022e and 15x 2023e P/E. We maintain our OUTPERFORM rating and our target price of Rmb37.54 (22x 2022e and 18x 2023e P/E), offering 25% upside.

    Risks

    Volatile prices of raw materials; disappointing expansion of new businesses.