Guanhao Quick View: Domestic special paper leader, production capacity has entered an expansion cycle. 1. The company has been deeply engaged in the coating field and absorbed and merged the "Yuanhuabao" with complementary advantages. Guanhao Hi-Tech is a domestic old papermaking

(report producer/analyst: West China Securities Xu Linfeng Qi Zhisheng)

1.1. The company has been deeply involved in the coating field and absorbed and merged the "Yuanhuabao" with complementary advantages

Guanhao Hi-Tech is a domestic old papermaking enterprise with special paper as the core. The company was established in Zhanjiang Economic and Technological Development Zone in 1993 and was completed and put into production in 1995. In June 1997, a national key high-tech enterprise was recognized. It was listed on the Shanghai Stock Exchange in June 2003.

In December 2009, China Paper Holdings was introduced through non-public offerings, becoming a mixed enterprise holding company for central enterprises. China Paper Investment Co., Ltd. subscribed 60 million shares of Guanhao Hi-Tech for cash for 276 million yuan, becoming the controlling shareholder of Guanhao Hi-Tech. China Paper is a wholly-owned subsidiary of China Chengtong Group, formerly known as China Material Development and Investment Corporation, established in 1988.

In April 2020, after filing by the Office of the Leading Group for the State-owned Enterprise Reform of the State Council, Guanhao Hi-Tech became the only "science and technological reform demonstration enterprise" selected by China Chengtong system.

This time, it is a full affirmation of Guanhao Hi-Tech's active implementation of the spirit of the SASAC, China Chengtong and China Paper's instructions on reform and innovation and the practical results obtained. It is also a good opportunity and important tool for Guanhao Hi-Tech to accelerate the deepening of state-owned enterprise reform.

In April 2021, Guanhao High-tech's share swap absorption and merger of "Yuanhuabao" was approved by the China Securities Regulatory Commission, setting a precedent for domestic cross-exchange merger (A-absorbing B).

The company exchanges shares for shares to absorb and merge Yuehuabao by issuing A shares, that is, the company issues A shares to all the exchange shareholders of Yuehuabao to exchange Yuehuabao shares held by these shareholders; at the same time, the company uses inquiry to issue A shares privately to no more than 35 specific investors to raise matching funds of no more than 500 million yuan. The share exchange ratio between Yuehuabao and the company is 1:1.1188, that is, every 1 Yuehuabao stock can be exchanged for 1.1188 shares of the company's A shares.

The main advantage of Guangdong Huabao is the advanced coated white cardboard business, which complements Guanhao Hi-Tech's advantages. The actual controller of Yuehuabao is China Chengtong Holding Group Co., Ltd., and the controlling shareholder is China Paper Investment Co., Ltd., and its main products include high-end coated white paperboard, aluminum-plastic composite packaging materials, new packaging materials and color packaging printing, etc. Among them, high-end coated white cardboard is a product that the country is focusing on and encourages development. Currently, this product accounts for more than 80% of the company's operating income. The main production bases of the two listed companies are located in Guangdong, and the production raw materials also overlap, and the core technology synergy effect is significant.

Yuehuabao Company currently has 3 coated white cardboard production lines, with an annual production capacity of about 600,000 tons. This merger will help both parties exert scale effect and synergistic effect in procurement, R&D, production and logistics channels, and achieve a comprehensive improvement in the production scale, product variety, technical strength and management operations of listed companies.

Currently, Guanhao High-tech Production Base is distributed in the convenient core areas of Zhanjiang, Zhuhai, Foshan and Jiaxing, Zhejiang, etc., and has developed into a China Paper Southern Platform Company with "coating" technology as the core and involving high-end coated white cardboard, special paper, fine chemicals, color printing products and other businesses. The company's core competitiveness has been further enhanced, forming agglomeration development effect and scale effect.

In 2009, China Paper Holdings Guanhao Hi-Tech invested and built a total investment of 7.6 billion yuan in Zhanjiang, Guangdong, covering an area of ​​1,100 mu, becoming the world's largest special paper industry base in Donghai Island. It has built supporting projects such as self-produced power plants and sewage treatment stations in the papermaking base.

Zhejiang Guanhao has two modern self-adhesive label material production bases, Zhejiang Pinghu and Guangdong Zhanjiang, covering an area of ​​200 mu, with technical level and production capacity at the forefront of the domestic self-adhesive industry. The products are sold to more than 50 countries and regions on five continents around the world.

In recent years, the company has adhered to the strategic positioning of "new coating materials and related industries with paper and film as the substrate", continued to strengthen the core competitiveness of "coating technology", completed the stock exchange and absorption restructuring project with high quality, and actively planned the construction of Zhanjiang Donghai Island papermaking industry base.

Special paper business: company has 2 special paper base paper production lines and 13 coating production lines, with a base paper production capacity of 190,000 tons and a coating production capacity of 270,000 tons. The company's special paper products mainly include thermal sensitive paper, self-adhesive labels, thermal sublimation transfer paper, carbon-free paper, etc.

Thermal paper is mainly used in POS cash register receipts, ATM receipts, electrocardiograms, industrial charts, labels, faxes, lottery and student test questions printing. Self-adhesive labels are mainly used in variable information labels, anti-counterfeiting labels and basic labels in logistics, medicine, daily chemicals, food and alcohol industries.

Thermal sublimation transfer paper is mainly used in textile fields such as polyester-containing clothing and home textiles. In recent years, the company's products have occupied the main market share in the domestic digital printing field with excellent quality. Carbon-free paper is mainly used in the fields of taxation, finance, logistics and communications. It is the main supplier of carbon-free paper for the five major domestic banknote printing and minting companies and tax bureaus in various provinces and cities. In terms of

white cardboard business, the company currently has three coated white cardboard production lines, with an annual production capacity of about 600,000 tons. The company's Zhanjiang base is under construction with an annual production capacity of 300,000 tons. It is estimated that the company's high-end coated white cardboard production line will reach 900,000 tons in 2024. The company's white cardboard products mainly cover three major areas: tobacco packaging, food packaging and functional social product packaging, and provide customers with "personalized" products and services with a "differentiated" business strategy.

chemical products business is mainly the company's business extending its upstream layout in the papermaking industry chain.

main products include carboxylic styrene butadiene latex for papermaking, styrene propane latex, ultrafine calcium carbonate and chemical additives, etc., which are used in coating adhesives and coating pigments of major domestic coating paper-making enterprises. They can be well suited for high-quality packaging paper-grade paper-making raw materials such as food and cigarettes. At the same time, they can supply various grades of paper-making raw materials according to customer requirements. At present, the company has a latex capacity of 100,000 tons. After the third phase latex expansion project is put into production, the capacity will increase to 150,000 tons and the calcium carbonate capacity will be 20,000 tons.

color printing business is the company's supporting business extending to the downstream of the papermaking industry chain.

mainly provides customers with one-stop packaging solutions including solution design and material production, and is undertaken by the company's wholly-owned subsidiary Huaxin Color Printing. Huaxin Color Printing has offset printing, flexo printing, and gravure printing workshops, focusing on the production and technological innovation of fully automatic packaging folding cartons, cartons, wet glue labels, self-adhesive labels, etc., which can meet variable data printing; it is aimed at terminal consumer industries, such as pharmaceuticals, condiments, various beverages, etc. The most prominent advantage of

product is that it can provide customers with customized solutions from the material end, providing customers with more environmentally friendly, economical and more personalized packaging materials. At present, the company has an offset printing capacity of 255 million printing and a flexible gravure printing capacity of 98.3 million meters.

1.1.Backed by China Chengtong, the reform of state-owned enterprises is at the right time

State-owned assets background, and central enterprises have become actual controlling shareholders. From the perspective of equity structure, Guanhao Hi-Tech's controlling shareholder is China Paper, and the actual controller is China Chengtong Holdings Company (the shareholding ratio is approximately 33.84%).

China Paper is the first batch of pilot enterprises for the construction and standardized board of directors and a professional platform for state-owned capital market-oriented operation - a wholly-owned subsidiary of China Chengtong Holding Group Co., Ltd. and an operating platform for the paper sector. It is also the only modern large central enterprise in China that has the development, production and utilization of forest pulp and paper. It has three listed companies: Guanhao Hi-Tech, Yueyang Forest Paper and Meiliyun.

The products of China Paper Company cover six major series of products, including cultural paper, office paper, packaging paper, special paper, pulp and chemical products.

China Paper Group has rich internal resources and has long supported the reform and development of Guanhao Hi-Tech. It has given Guanhao Hi-Tech full authorization in improving the corporate governance mechanism, improving the market-oriented personnel selection and employment mechanism, strengthening the market-oriented incentive and constraint mechanism, and stimulating the momentum of scientific and technological innovation, further unleashing the company's development momentum and vitality.

China Paper Industry: the only "national team" among the top 10 papermaking industries in China.

It is worth noting that China Paper Investment Co., Ltd., as a central enterprise with the main business of forest pulp and paper production, has gained control over a number of domestic papermaking enterprises through acquisitions and restructuring in recent years, and has actual control over MCC Paper, which is also a subsidiary of China Chengtong Holdings. It is currently the backbone of state-owned capital in the papermaking industry.

In 2019, China Paper's paper production capacity was about 2.84 million tons, ranking 7th in the country.

In April 2020, after filing by the Office of the Leading Group for the State-owned Enterprise Reform of the State Council, Guanhao Hi-Tech became the only "science and technological reform demonstration enterprise" selected by China Chengtong system.

This time, it is a full affirmation of Guanhao Hi-Tech's active implementation of the spirit of the instructions on reform and innovation and the practical results obtained by Guanhao Hi-Tech. It is also a good opportunity and important tool for Guanhao Hi-Tech to accelerate the deepening of state-owned enterprise reform and innovation.

We believe that Guanhao Hi-Tech will play a leading and leading role and contribute to promoting the optimization of the layout and structural adjustment of state-owned capital.

Guanhao Hi-Tech will follow the instructions of the Party Central Committee and the superior Party Committee, focusing on the overall requirements of targeting five new momentums and achieving four major breakthroughs proposed by China Paper, relying on the core concepts of "four new" and "strict, practical, transparent and fast", focus on bold exploration and making good use of various policies, widely introduce high-end and sophisticated technical talents, strengthen the incentive and constraint mechanism for core backbone talents, establish and improve the fault tolerance mechanism of scientific and technological research and development, continuously strengthen scientific and technological innovation, accelerate the transformation of scientific and technological achievements, further stimulate innovation momentum and corporate vitality, and achieve high-quality development goals. During the implementation of the "Science and Technology Reform Demonstration Action", Guanhao Hi-Tech will focus on exploring and innovation and making breakthroughs in improving corporate governance, market-oriented personnel selection and employment, and strengthening incentives and constraints in accordance with the reform plan and work log filed and reviewed by the State-owned Enterprise Reform Leading Group of the State-owned Enterprise Reform, focusing on exploring and innovation in improving corporate governance, market-oriented personnel selection and employment, and strengthening incentives and constraints. We will strive to become a model for reform of state-owned science and technology enterprises and independent innovation models, carefully study and put forward opinions and suggestions, summarize experience, play a leading and leading role, and contribute to promoting the optimization of state-owned capital layout and structural adjustment. The company has been awarded the "Excellent" level for the "Science and Science and Technology Reform" special assessment by the State-owned Assets Supervision and Administration Commission for two consecutive years.

1.1. Bad debts are set up lightly, and the implementation of equity incentives can be expected in the future

21 in 2021, the company's revenue and net profit attributable to shareholders were 7.398 billion yuan/139 billion yuan, up 13.86%/-56.38% year-on-year respectively. In the first three quarters of 2022, the company's revenue and net profit attributable to shareholders were 5.889/252 billion yuan, an increase of 8.14%/30.57% year-on-year respectively.

The decline in the company's net profit in 2021 is mainly due to the impairment test of the fixed assets of the company and its subsidiaries at the end of November 2021 and assets that may have signs of impairment within the scope of the consolidated financial statements caused by the bankruptcy liquidation of Zhuhai Guanhao Barcode Technology Co., Ltd., the company set aside a total of RMB 161.5977 million in impairment provisions.

In October 2014, after the company's capital increase and merger of Zhuhai Guanhao was completed, the express printing industry market underwent tremendous changes. The multi-link carbon-free express delivery orders were gradually replaced by thermal express delivery orders. Zhuhai Guanhao's core competitiveness was greatly weakened. In addition, the express delivery order printing industry has low threshold, meager profits, fierce competition, and large and concentrated major customers, which is relatively strong in the transaction. Zhuhai Guanhao's operations have continued to lose money and insolvent debts.

Because Zhuhai Guanhao is unable to repay its debts and its assets are insufficient to repay all debts, in order to protect the legitimate rights and interests of the company and shareholders, the company agreed to Zhuhai Guanhao apply for bankruptcy liquidation.

As of November 30, 2021, Guanhao Hi-Tech and its subsidiaries had a total of 108.9566 million yuan in debt claims against Zhuhai Guanhao. Considering the impact of Zhuhai Guanhao's bankruptcy, through reasonable predictions on the future recoverable value of Zhuhai Guanhao, it is expected that the possibility of recovering this part of the debt claims is not high. The credit impairment loss of 108.9566 million yuan is fully accrued by arranging bad debt provisions in a single item.

At the same time, the company conducted an impairment test on the fixed assets based on the use and lifespan of some assets. It was found that some fixed assets had signs of impairment, and an asset impairment loss of 52.6411 million yuan was required.

In summary, the company set aside 108.9566 million yuan in bad debt provisions and 52.6411 million yuan in impairment provisions, which has a total impact on the company's total consolidated profit in 2021 by 161.5977 million yuan.

Overall, Guanhao Hi-Tech's profitability has improved significantly since 2018.

net profit margin increased from 2.19% in 2017 to 7.23% in 2020. After the merger of Guangdong Huabao, the company's industrial complementarity effect is obvious and its profitability is expected to continue to improve. The project of stock exchange and absorption of Guangdong Huabao is implemented in 2021. The significant increase in revenue and net profit is mainly due to the income of the financial statements merged with Guangdong Huabao.

Guanhao Hi-Tech and Yuehuabao have significant industrial synergy effects. They are both under China Paper and their geographical location belongs to Guangdong. It is expected that they can make synergistic progress in raw material procurement, process technology and other aspects in the future.

After the merger of the two companies, it is expected to further enhance the core competitiveness of the products and improve profitability. It is expected that the company's gross profit margin and net profit margin will continue to increase in the future.

points, according to the company's financial report, 's white cardboard revenue in 2021 was 3.89 billion yuan, accounting for 52.28% of the total revenue and gross profit margin of 21.21%; carbon-free thermal paper revenue was 1.43 billion yuan, accounting for 19.33% of the total revenue and gross profit margin of 17.74%.

self-adhesive revenue was 920 million yuan, accounting for 12.43% of the total revenue and gross profit margin was 8.68%.

Chemical business revenue was 430 million yuan, accounting for 5.85% of the total revenue and gross profit margin was 22.07%. The printing business revenue was 460 million yuan, accounting for 6.19% of the total revenue and the gross profit margin was 13.05%.

Considering the company's future capacity expansion plan, the white card business will contribute more revenue growth in the future. With the continuous increase in the price of wood pulp in Q1 2022 and maintained a high fluctuation, the company's cost-side pressure gradually increased, and the company's gross profit margin in Q3 2022 fell from 18.68% in 2021 to 15.42%. However, considering that the price of wood pulp will likely fall next year, the company's profitability is expected to increase next year.

In 2021, the company released an equity incentive plan to enhance the enthusiasm of executives and core employees and promote the company's sustainable development.

The year for the first time and reserved for restricted shares to be lifted for the first time and reserved for restricted shares will be 2022-2024, and will be assessed once in each fiscal year. The company's performance in the financial year before the lifting of the restricted stocks in each batch meets the following conditions, and the corresponding batch of restricted stocks can be lifted as scheduled.

This equity incentive is conducive to incentivizing the company's management team and core employees, exerting subjective initiative, promoting the stable growth of the company's business, and realizing the appreciation of state-owned assets. This equity incentive is mainly for company executives, middle-level managers and core employees, with a wide coverage, and the setting of assessment indicators is scientific, forward-looking and reasonable. The setting of performance evaluation target values ​​has fully taken into account the company's operating environment, industry level and future business development plans. It is both highly challenging for the company and is conducive to promoting the company's sustainable growth.

According to the performance appraisal requirements of equity incentives, the company's net profit attributable to shareholders after deducting non-operating items in 2022 will be at least 370 million yuan.

It is worth noting that among the company's equity incentive plan performance evaluation goals, not only does it set an absolute value target of 15% annual compound growth rate for the company's net profit growth, but it also sets a relative goal that cannot be lower than the 75th percentile value of the benchmark enterprise. We believe that such compound goal assessment will more actively promote the company's future performance growth.

The company's main business, whether it is special paper or white cardboard, wood pulp is the main material.

Since the beginning of this year, due to the impact of the epidemic and other factors, the prices of energy, chemical raw materials, wood chips, logistics, etc. have remained high, the operating costs of the paper industry have risen, and the profit space of the paper industry has been squeezed. Due to the sharp rise in pulp prices this year, the current price of pulp and the ex-factory prices of most paper products have been inverted. This is also the main reason why many small and medium-sized paper mills have suffered losses or chose to shut down work, and the company's gross profit margin has also continued to decline month-on-month.

However, we believe that the inversion of paper prices and pulp prices in the long term is unsustainable, and wood pulp prices are expected to fall in 2023, thereby restoring the company's profitability.

From the supply side: Chile's Arauco company announced that the new bleached eucalyptus (BEK) pulp production line is at the end of construction, and the first patina is expected to be put into production in mid-December.

This project is a new pulp production line built by Arauco pulp mill. It is part of Arauco's large-scale investment project. It is one of the largest pulp projects in the world. The pulp production capacity will reach 1.56 million tons/year. The project was originally scheduled to start production in the first quarter of 2021, but the launch of the project has been delayed several times due to factors such as the Covid-19 pandemic and the strike of truck drivers in Chile. Secondly, UPM's modern eucalyptus pulp mill built near Paso de los Toros in central Uruguay has an annual output of 2.1 million tons and is also scheduled to start production at the end of March 2023. The commissioning of these two projects will effectively alleviate the current supply pressure of commercial slurry.

From the demand side: Since the epidemic situation in Europe and the United States has been unblocked, the economy has been in a state of overheating for a long time, and global paper demand has increased significantly year-on-year, which has also increased the overall demand for wood pulp this year.

The US and European Central Bank have recently released minutes of monetary policy meetings, reiterating that it will continue to tighten monetary policy to curb inflation. IHSMarkit data shows that the initial value of the US manufacturing PMI in November was 47.6, a new low since May 2020; the initial value of the service PMI in the service industry was 46.1, and the initial value of the comprehensive PMI was 46.3, both of which hit new lows since August this year and were less than market expectations. The business conditions in the US deteriorated in November.

The European Commission released a report saying that due to multiple factors such as increased uncertainty, soaring energy prices, pressure on household purchasing power, and tightening financing conditions, the economies of the EU, the eurozone and most member states are expected to fall into recession in the fourth quarter of this year, and economic activity will continue to shrink in the first quarter of next year. As the economy and economy of Europe and the United States are under pressure, global paper demand is expected to decline, resulting in a decline in demand for wood pulp.

With the increase in the global wood pulp supply and the decline in the demand side, we expect wood pulp prices to fall by 15%-20% in 2023. The pressure on the company's cost side is expected to ease and profitability is expected to increase.

3.1. Driven by the demand of downstream industries, special paper still has great growth potential, and the industry concentration continues to increase

Special paper industry has a steady development. Driven by the demand of downstream industries, the compound growth rate in the past ten years has exceeded 8%.

Through continuous innovation in industry technology, my country's special paper industry has successfully transformed from import-led to domestic substitution. my country has become one of the major countries in the production of special paper. There are many types of special paper products, and the mainstream categories include food packaging paper, decorative base paper, thermal sensitive paper, carbon-free paper, grazing paper, etc.

According to data from Zhiyan Consulting Report, the top five categories in my country's special paper industry in 2019 were food packaging paper (26%), decorative base paper (15%), thermal paper (7%), carbon-free paper (7%), and grazing paper (4%), and the top five categories accounted for 59%.

The downstream demand of each sub-special paper is affected by the macroeconomic level, industrial policies, consumer concepts and other factors. Paper companies decide the production line layout based on market demand, and the growth of each sub-special paper shows diversified development. The company's main special paper products include thermally sensitive paper, thermal transfer paper, carbon-free paper and self-adhesive labels.

Thermal paper is also called thermal fax paper, thermal recording paper, and thermal copy paper.

Thermal paper is smooth and is made of ordinary paper as the paper base. A thermal chromogenic layer is applied on one side of the ordinary paper. When the thermal paper encounters a heated print head, the color developer at the print head prints chemically and the colorless dye will change color, forming pictures and text. The threshold for the ordinary thermal paper industry is low, domestic production capacity continues to grow, and market competition in the industry has further intensified.

The main incremental market for thermal sensitive paper comes from the electronic bills for express logistics and the printing demand for commercial cashiers.

On the one hand, with the rapid development of e-commerce and logistics, the demand for thermal paper for express electronic noodle sheets has maintained rapid growth, which has driven the wide application of thermal paper in the fields of e-commerce express and logistics. On the other hand, various offline business ecology has the need to print product barcodes and electronic page sheets, such as convenience stores, shopping malls, hospitals and other places, which drives the increase in the demand for thermal paper.

From the perspective of the market structure of thermal paper, Xianhe Co., Ltd. and Guanhao Hi-Tech occupy the top two.Xianhe Thermal Paper has a production capacity of about 100,000 tons, with a market share of about 20.4%, Guanhao Hi-Tech's market share is about 14.3%, and the rest include Jianghe Paper (10%), Jinhuasheng (9.4%), etc.

Thermal transfer paper is a type of special paper with transfer performance.

transfer refers to a printing method in which various pictures and texts are printed on a special paper with special thermal transfer ink, and then the pictures and texts on the paper are transferred to the substrate with the corresponding temperature and pressure. This paper carrying the pictures and texts is thermal transfer paper.

Today, when fashion handicrafts are becoming increasingly popular with people, various transfer technologies have also been developed, attracting many entrepreneurs and fashion lovers to use them, and are widely used in industrial printing fields such as porcelain, textiles, and building materials.

paper substrates for thermal transfer are fabrics, porcelain, metals, plastics, etc. According to their process and production process, their uses can be divided into two categories:

One is mainly used for the production of pattern clothing and some clothing fabrics, outdoor advertising, shoes and hats, etc., and has large-scale and industrial characteristics. The equipment used is mainly large-format inkjet printers and thermal transfer machines; the other is personalized product transfer, which is to transfer the images you designed to on some cups, plates, ceramics and other utensils with special coatings. The equipment used is mainly hot and cup oven machines.

. According to the thickness and purpose of the base paper, thermal transfer paper can be divided into: transfer printing paper, thermal transfer paper and digital spray paper.

transfer printing paper is mainly used on clothes, and the patterns are transferred to clothes through thermal sublimation; the heat transfer paper transfers the patterns to some daily necessities such as aluminum alloy doors and windows, ceramics, etc. through thermal sublimation; digital spray paper is mainly used in outdoor advertising.

As the clothing industry continues to increase demand for diversified appearances, the overall demand for single clothing products has driven the continuous growth of thermal transfer paper production. Data shows that my country's thermal transfer paper has increased from 101,000 tons in 2011 to 230,000 tons in 2021. Downstream clothing and ceramics continue to drive, and domestic production still has a large room for expansion.

In terms of the competitive landscape of thermal transfer paper, the overall technical and environmental protection requirements of domestic thermal transfer paper are relatively high, and the market concentration is relatively high. In 2020, the industry's CR3 was as high as 80.3%, and the main participants were Guanhao Hi-Tech/Xianhe Co., Ltd./Wuzhou Special Paper, with a market share of 36.5%/31.0%/12.8% respectively. The total new production capacity of leading enterprises exceeded 40,000 tons in the next three years, and it is expected that the industry's supply and demand will remain balanced.

Carbon-free paper is also called carbon-free copy paper. You can quickly achieve the purpose of copying without having to insert special copy paper.

Carbon-free paper is divided into upper page, middle page and next page. On the next side of the upper page and middle page, there is a certain chemical, and on the upper side of the middle page and next page, there is another chemical.

After combining in the order of the upper, middle and next pages, when subjected to the impact force of the printing needle or the pressure of the pen tip, two different drugs will meet and show a bright trace to achieve the purpose of rewriting.

Because carbon-free copy paper is easy to use, clear handwriting, and many copies, it is especially suitable for computer printing and office automation. Therefore, with the development of office automation, carbon-free replica paper has been widely used in various fields such as banking, postal, telecommunications, taxation, transportation, hotels, customs, insurance, logistics, etc.

Currently, under the influence of electronicization and thermal sensitization, the demand for carbon-free paper is constantly declining. Especially under the electronicization of medical bills and fiscal and tax bills, the demand for carbon-free paper for bills has declined rapidly.

self-adhesive labels are mainly used in variable information labels, anti-counterfeiting labels and basic labels in logistics, medicine, daily chemicals, food and alcohol industries.

Compared with traditional labels, self-adhesive labels have many advantages such as no need to brush glue, paste, dip water, no pollution, and time saving. It is a composite material with paper, film or other special materials as fabric, with adhesive on the back and silicone protective paper as the base paper. After printing, die-cutting and other processing, it becomes a finished product label. Compared with mature European and American markets, the self-adhesive label market still has sufficient room for growth.

At present, with the continuous improvement of domestic self-adhesive label technology, various high-level labels can be processed in China. Some of them were once labels other than printing and have been transferred to domestic processing. The domestic self-adhesive label market maintains steady development.

The per capita self-adhesive label usage in developed European and American countries has reached 10 square meters/year, and the per capita self-adhesive label usage in my country is only 5.7 square meters/year. Compared with mature European and American markets, my country's self-adhesive label market still has sufficient growth space.

3.2 The company's various products are developing steadily, achieving a cross-border industry from "paper coating" to "paper coating"

Company's special papers mainly include thermal sensitive paper, thermal sublimation transfer paper, carbon-free paper, self-adhesive labels, etc.

Thermal paper products are mainly used in the fields of bills, labels, faxes, cashiers and ATM paper.

The three-proof special thermal paper independently developed by the company has a large market share in high-end fields such as China Sports Lottery, China Welfare Lottery, and Civil Aviation Boarding Pass. We expect that the production of the higher-priced lottery thermal paper accounts for about 20% of the company's thermal paper production, and the gross profit margin is also relatively stable. The newly launched membrane-based thermal materials are also widely praised in the medical industry.

self-adhesive label materials are mainly used in variable information labels, anti-counterfeiting labels and basic labels in logistics, medicine, daily chemicals, food and alcohol industries. Thermal sublimation transfer paper is mainly used in textile fields such as polyester clothing and home textiles.

In recent years, sublimation transfer paper has made major breakthroughs in the field of digital printing, and the company's products occupy the main domestic market share with excellent quality. Carbon-free paper is mainly used in taxation, postal, banking and commercial industries. The company is also the main supplier of tax invoice carbon-free paper for tax bureaus of various provinces and municipalities and the five major domestic banknote printing and minting companies. Benefiting from its central enterprise background, we expect the company's market share in the invoice paper market to be about 60%. In terms of

production capacity, the company currently has 2 special base paper production lines and 13 coating production lines, with annual production capacity of 190,000 tons and 270,000 tons respectively.

In addition, the second phase of the company's special paper and coated paper industry base project includes a special paper production line with a production capacity of 60,000 tons/year. Considering that the special paper production line is small, we expect this production line to be put into production in 2024, thereby strengthening the company's competitiveness in special paper business.

In addition to steadily developing traditional special paper business, the company has also achieved cross-border development from "paper coating" to "film coating".

On May 15, 2022, the precision coating pilot production line of the Donghai factory in the Zhanjiang base of Guanhao High-tech, started operation, and the production line launched the first batch of emerging products in the market - digital hot paint film, bringing a new environmentally friendly consumable solution to the finished product customization industry of clothing, luggage, and bags.

In the field of customizing finished clothing and bags, traditional processes of offset printing and silk screen printing are adopted. The plate making requirements are gradually difficult to adapt to the market trend of small order and personalization. The solvent production process it uses and the VOC pollution such as xylene produced will also have many adverse effects on the occupational health of employees and the lives of residents around the factory area.

At the same time, in recent years, digital printing has brought new choices to printing practitioners in different fields with its advantages such as plate-free, personalized, and fast delivery.

company uses its experience and accumulation in the field of coating to quickly carry out R&D and technical iteration. Through original breakthroughs in pre-coating processes, it has taken the lead in launching improved digital white ink hot paint films used for customization of finished clothing and bags. In cultivating new business formats, it promotes the transformation of finished clothing and bags to intelligent manufacturing and environmental protection, and brings stable and cost-effective environmentally friendly consumables to customers.

At the same time, the company has signed 8 industry-university-research cooperation agreements with scientific research institutions such as Frontier New Materials Research Institute (Shenzhen) Co., Ltd., China Pulp and Paper Research Institute, South China University of Technology and other scientific research institutions and universities, using R&D companies as a technological innovation platform, concentrating efforts on accelerating the research and development, promotion and reserve of new product technologies, and further broadening market channels.

4.1. Supply side: The leader accelerates integration, and the industry enters the period of capacity expansion

APP Group acquired Bohui Paper, and the industry structure further improved.

Historically, due to the increasingly strict environmental protection requirements, supply-side structural reform, and the elimination of backward production capacity, after 2013, the white cardboard production capacity has gradually concentrated in large enterprises with complete environmental protection facilities, large production volume and advanced equipment.

Currently, the national white card paper production capacity is 15.14 million tons/year, of which the production capacity of APP (China) + Bohui Paper is 6.85 million tons/year, accounting for 45.24% of the total national production capacity, and CR3 reaches 77.28%.

Due to the high investment in the white cardboard production line (for example, the total investment of the high-end cardboard expansion project with an annual output of 1.8 million tons of APP is about 8.78 billion yuan), ordinary small factories are no longer able to invest in the white card production project, and most of the newly planned production capacity belongs to large enterprises.

At present, the white card paper industry has entered a cycle of capacity expansion.

Currently, more than 11 companies have announced new projects for whitening cardboard, with a total production capacity of more than 20 million tons. It is not difficult to see from the announced production capacity that the new production capacity is still mainly concentrated in leading enterprises and large domestic pulp and paper enterprises.

It is worth noting that in addition to the continued expansion of production of several leading white card paper companies such as APP, Asia Pacific Senbo, and Sun, Nine Dragons, Liwen, Shanying, Liansheng and other companies have also joined the white card paper team. Some medium-sized packaging paper companies such as Overseas Chinese Phoenix Paper, Dezhou Taiding Paper, Xinxiang Xinya Paper and Xianhe Co., Ltd. also have new white card production capacity plans.

4.2 Demand side: The plastic restriction order brings opportunities

is classified into the variety of white card paper, including white card paper quantile cigarette card, food card, copper card and social card, among which the output of social card accounts for the highest proportion, about 65%. The proportion of food cards and cigarette cards is 12% and 8% respectively. In downstream applications, the main downstream packaging demand for white cardboard comes from medicines, food, cigarettes, etc., accounting for 35.5%, 23.4% and 13.9% respectively

In January 2020, the National Development and Reform Commission and the Ministry of Ecology and Environment issued the "Opinions on Further Strengthening the Control of Plastic Pollution". The "Opinion" mentioned that (by the end of 2020, my country will be the first to ban or restrict the production, sales and use of some plastic products in some regions and areas; by the end of 2022, the consumption of disposable plastic products will be significantly reduced, and alternative products will be promoted.) By 2025, the consumption intensity of non-degradable disposable plastic tableware in the catering takeaway field in cities at or above the prefecture level will decrease by 30%. Currently, the market predicts that the required lunch boxes for takeout in 2020 will be 63.45 billion. Assuming that an average of 30g of lunch boxes will be about 1.9 million tons of replacement demand. Considering that the fast food industry is still developing rapidly, the demand for lunch boxes will reach 2 million to 3 million tons of food-grade alternative materials in the future.

Currently, the main plastic alternative materials include white cardboard, paper plastic and biodegradable plastic.

Among them, biodegradable plastics are costly and there is little possibility of being used for large-scale substitution. The raw materials of paper plastic are divided into orange slurry or bamboo slurry. Orange slurry has bottlenecks in China, and it is difficult to collect and store, produce, supply, and hygiene standards. If bamboo pulp is used in raw materials, the cost of bamboo pulp is not much different from that of broadleaf pulp, and the thickness required by paper plastic is much higher than that of white cardboard, and there are also problems in strength.

We expect that the main alternative raw materials in the future will be mainly food-grade white cards, supplemented by paper plastic, and a small amount of biodegradable plastic. The price of food-grade white cards is more stable, and the price of high-end materials such as liquid bags exceeds 8,000 yuan/ton. The production of food-grade white cards instead of ordinary white cards will help the release and stability of the white card mills in the future profits.

In addition, white cardboard tends to replace gray-back white. Due to regional economic transformation and other reasons, 2.5 million tons of whiteboard production capacity will be cleared in Fuyang area in 2020. Due to the influence of factors such as raw materials and product structure, it is expected that there will be no additional production capacity in the future. Combined with the consumption upgrade, the substitution effect of white jam paper will appear.

Overall, white cardboard has consumption attributes and is widely used, such as cigarette bags, food cards, pharmaceutical boxes and other sub-sectors.

In recent years, the compound growth rate of demand for white cardboard is between 7% and 9%. The consumption upgrade and the steady advancement of plastic restrictions are also conducive to the growth of demand for white paper. However, considering that there is a lot of new production capacity of white cardboard in the future, it is unlikely that the price of white cardboard will have too much room for growth in the short term.

4.3. Company growth points: differentiated competition + capacity expansion

The company's high-end coated white cardboard products mainly cover three major areas: tobacco packaging, food packaging and functional social product packaging, and provide customers with "personalized" products and services with a "differentiated" business strategy.

cigarette card: company independently developed and produced the first domestic cigarette coated white card paper to fill the domestic gap and open up the era of domestic cigarette card paper replacing imports.

Among them, "Colorful Fiber Anti-Counterfeiting White Card Paper" won the highest award in China's science and technology - "National Science and Technology Progress First Prize", which is the only paper product to have won this award so far. The "Hongta" brand coated white cardboard has a leading position in the quality of the white cardboard industry at home and abroad, representing the highest level of China's coated white cardboard production, technology and products.

tobacco packaging white card paper mainly serves leading printing companies such as Jinjia, Hucai, Dongfeng, Meinong, Jiyou. With its excellent printing performance and post-processing suitability, it has become a well-known brand of tobacco packaging paper for domestic tobacco packaging paper. Its products are steadily supplied to major tobacco companies such as Yunnan China Tobacco, Hunan China Tobacco, Zhejiang China Tobacco, etc. The domestic tobacco card market share exceeds 22%.

Since major China Tobacco companies implement annual bidding business model, the product price is difficult to change after the bid is set at the beginning of each year, so the price of tobacco card products is generally relatively stable.

Since 2018, my country's cigarette production has been on a growing trend. In 2020, China's cigarette production was 2386.373 billion, an increase of 22.124 billion over the previous year, an increase of 0.94% year-on-year; in 2021, China's cigarette production was 241.824 billion, an increase of 31.867 billion over the previous year, an increase of 1.34% year-on-year.

The subsidiary of the company's white cardboard business is Zhuhai Hongta Renheng Packaging Co., Ltd., which was established in 1991. It is a large modern papermaking enterprise integrating modern machinery and equipment and technology jointly invested and built by Yunnan Hongta Group Co., Ltd. and Singapore Renheng Industrial Co., Ltd.

In June 2009, Foshan Huaxin Packaging Co., Ltd. (i.e. "Yuehuabao") and Longbang International Co., Ltd., controlled by China Paper Investment Corporation, completed the capital increase in Hongta Renheng Paper with their equity in Foshan Huafeng Paper.

Currently, the second shareholder of Hongta Renheng is Yunnan Hehe. It is a state-owned large-scale joint-stock company established in the reform process of Yunnan China Tobacco's "two unifications and two integrations" and is jointly invested by Yunnan China Tobacco (12% of the shares), Hongta Group (75% of the shares), and Hongyun Honghe Group (13% of the shares). Based on more than 140 diversified operating enterprises belonging to the three shareholders, it is integrated and reorganized.

Given that the company has the shareholder background of Yunnan China Tobacco and Hongta Group and the company's central enterprise attributes, we expect the company's share in the tobacco card market to continue to increase in the future.

Food Card: Food packaging white card paper is the company's key development product, mainly including sterile liquid packaging paper, oil-proof food white card paper, plastic-free coated food white card paper, etc.

Company took the lead in breaking the foreign technology monopoly and independently developed sterile liquid packaging paper for beverage packaging such as liquid milk, juice, and herbal tea, effectively replacing imported products. The innovative technology and stable product quality make the company the core supplier of Tetra Pak in the Asia-Pacific region, the world's largest liquid packaging company.

is the first domestic company to develop and produce fluorine-free coated, oil-resistant white cardboard. The food packaging series of products such as oil-resistant white cardboard and high-end paper cup base paper have been recognized by many world-renowned catering groups and have established a sustainable and good strategic cooperation relationship. At present, the company has become a strategic supplier of McDonald's, an international fast food chain company, in the Asia-Pacific region.

Company adheres to the path of green and low-carbon development, actively responds to the national "plastic reduction" and "plastic ban" policies, and successfully develops and launches "plastic-free coated food cards", "PBS filmed food jam paper", etc., which can effectively replace PE filmed paper and reduce the use of non-degradable plastic products.

The "liquid bag" in the company's food card products is its main product, and its downstream China's sterile packaging market has experienced rapid growth in the past few years.

China's sterile packaging consumption increased from 80.2 billion bags in 2017 to 110 billion bags in 2021. The CAGR reached 8.2% in four years, and it is expected to continue to grow rapidly in the next few years.

The growth of customers of downstream room temperature milk and non-carbonated beverages for aseptic packaging continues to drive the growth demand for aseptic packaging, and the sterile packaging market still has great growth potential. Among the major customers of

, Tetra Pak was founded in the 1950s and headquartered in Sweden. It is the world's largest supplier of roll-type sterile packaging and roll-type feeding filling machines.

According to the "2020 Annual Report" released by Tetra Pak, Tetra Pak operates in 175 countries and regions around the world, with 25,309 employees worldwide.

In 2020, Tetra Pak's net sales revenue worldwide was 10.8 billion euros. Since entering the Chinese market, Tetra Pak has been dominant in the sterile packaging market.

According to a research report issued by Ipsos, in 2020, Tetra Pak's sterile packaging sales amount in the Chinese market accounted for about 53.5% of the sales amount in China's sterile packaging market, and the sales volume accounted for about 50.6%. Considering the rapid growth of China's sterile packaging market, the company will continue to benefit as the core supplier of Tetra Pak, the industry leader.

Social Card: The company occupies an important market position with its personalized product strategy. The "mark code anti-counterfeiting white card paper" independently developed by

The company has anti-counterfeiting from the source of packaging materials, achieving a significant anti-counterfeiting effect of "easy to identify and difficult to imitate", greatly reducing the anti-counterfeiting costs of end customers and the anti-counterfeiting costs of markets, and obtaining good economic and social benefits. It has been widely used in packaging fields such as medicine and cosmetics. In addition, the company's "blister white cardboard" and "vaccine packaging white cardboard" have developed products that show excellent packaging performance under specific needs and are well recognized by customers. In terms of

production capacity, the company's Zhuhai base has 3 high-end coated white cardboard production lines with an annual production capacity of 600,000 tons. The Zhanjiang base is under construction with an annual production capacity of 300,000 tons. It is estimated that the company's high-end coated white cardboard production line will reach 900,000 tons in 2024.

At the same time, according to the environmental impact assessment announcement of Zhanjiang Zhong Paper Co., Ltd., the high-end packaging new material project of Zhanjiang Zhong Paper Co., Ltd. China Paper Southern Base plans to build a production line with an annual output of 1.02 million tons of coated white paper, two chemical slurry production lines with an annual output of 612,000 tons, and a supporting one calcium carbonate production line with an annual output of 204,000 tons, an annual recycling line of 27,540 tons of alkali, an automated intermediate warehouse and finished product warehouse, equipped with a water supply treatment station and a sewage treatment system.

Considering that Zhanjiang Zhong Paper Co., Ltd. is a wholly-owned subsidiary of China Paper, it belongs to the same actual controller as Guanhao Hi-Tech, and once the coated white cardboard of this project is put into production, it will form a competitive relationship with Guanhao Hi-Tech's current white cardboard products.

At the same time, China Paper has promised that the businesses engaged in and the companies it controls will not constitute substantial competition with Guanhao Hi-Tech. Therefore, we expect that this project may be injected into Guanhao Hi-Tech listed company at a suitable time in the future.

thus increases the company's white card production capacity to 1.92 million tons, and is equipped with 612,000 tons of chemical slurry, effectively reducing the company's raw material costs.

5.1 China Chengtong takes over Tianjin Lishen

Tianjin Lishen is one of the most senior lithium battery companies in China. It was founded in 1997 and was originally invested and established by the 18th Institute of China Electronics Technology Group Corporation.

As soon as it was established, it was the largest investment scale and the highest degree of automation in China.At the beginning of its establishment, Tianjin Lishen developed and produced more than 100 varieties of lithium batteries in four categories, including polymer batteries, square batteries, round batteries, and high-power power batteries.

In 2001, Tianjin Lishen became Motorola's supplier, taking the lead in breaking the long-standing situation where foreign lithium-ion batteries occupy the mainstream domestic market. Immediately afterwards, Lishen entered the supplier system of Samsung, Lenovo, ZTE and other companies, and produced polymer batteries, square batteries, round batteries and other products required for mobile phones, laptops, MP4s, portable DVDs, etc. for customers. With the emergence of new energy vehicles, Tianjin Lishen began to shift from 3C small batteries to mass production of large-scale power batteries, and in September 2012, the company's power batteries passed Volkswagen's quality system review.

In 2016, Tianjin Lishen installed capacity was 1.44GWh, ranking fifth behind BYD, CATL, Waterma, and Guoxuan Hi-Tech. By 2022, data from the China Automobile Power Battery Industry Innovation Alliance showed that from January to September this year, Lishen Battery had installed capacity of 0.97GWh, accounting for 0.5%, ranking 14th.

In 2020, China Electronics Technology and China Chengtong signed a Tianjin Lishen equity restructuring and transfer agreement, and China Electronics Technology transferred all its equity to China Chengtong for free.

In January 2021, China Chengtong officially took over and became the major shareholder of Tianjin Lishen.

After China Chengtong took over, it brought huge changes to Tianjin Lishen. On January 28 this year, Tianjin Lishen announced the signing of the capital increase and subscription agreement for the first round of financing for power batteries. After the financing is completed, the overall valuation of the power sector in the power sector is nearly 20 billion yuan. The company has recently launched the construction of Wuxi base and Chuzhou base. During the 14th Five-Year Plan, the planned annual production capacity will reach 120GWh.

In November 2022, Meiliyun, a listed company under China Chengtong, disclosed its restructuring plan, showing that the company plans to purchase 100% of the equity of Tianjin Juyuan New Energy Technology Co., Ltd. (referred to as "Tianjin Juyuan") and 100% of the equity of Lishen Battery (Suzhou) Co., Ltd. (referred to as "Suzhou Lishen") held by Tianjin Lishen through major asset replacement and issuance of shares to purchase assets. After the transaction is completed, Tianjin Lishen will become the controlling shareholder of Mile Cloud.

Aluminum-plastic film is one of the key materials for soft-pack lithium battery packaging. It plays a role in protecting the internal battery cell material. It has strict requirements in terms of barrier properties, cold stamping molding, puncture resistance, chemical stability and insulation. It has the advantages of light weight, thin thickness, flexible appearance design, and is widely used in military, medical, power tools and other related products.

aluminum-plastic film mainly has three thicknesses: 88μm, 113μm and 152μm. The first two aluminum-plastic films are mainly used to make 3C products, of which 88μm is suitable for thin digital batteries, and 113μm is suitable for 3C mobile batteries; while aluminum-plastic films with a thickness of 152μm have higher requirements for production processes and are more expensive, and are mainly used in the field of new energy vehicle power batteries and industrial energy storage power batteries.

The development of the aluminum-plastic film industry mainly conforms to the development trend of downstream lithium-ion batteries. Lithium-ion batteries can not only meet the needs of miniaturization and lightweighting of consumer electronic products, but also meet the demand for high-density and large charge and discharge ratios in the power battery and energy storage fields. The rapid development of the lithium-ion battery industry has driven the rapid growth of the market demand for aluminum-plastic film products for lithium-ion batteries.

5.2. Latex is an important raw material for lithium batteries.

The company's chemical products business is the company's business extending its upstream layout in the papermaking industry chain. Its main products include carboxylic styrene butadiene latex, styrene propane latex, ultrafine calcium carbonate and chemical additives. It is used in coating adhesives and coating pigments of major domestic coating paper-making enterprises. It has excellent adaptability with other paper-making raw materials and has been widely recognized by leading domestic paper companies. It can be well-suited to high-quality food, cigarettes and other packaging paper-grade paper-making raw materials. At the same time, it can supply various levels of paper-making raw materials according to customer requirements, and the quality reaches the first-class level in the domestic level. At present, the company has a latex capacity of 100,000 tons. After the third phase latex expansion project is put into production, the production capacity will increase to 150,000 tons and the calcium carbonate capacity will be 20,000 tons. Among the products of

, styrene butadiene latex is the most widely used water-based binder, and its downstream applications also include the new energy field. Currently, 98% of lithium battery negative electrode adhesives use SBR (SBR is the English abbreviation of styrene butadiene latex).

According to data from the Ministry of Industry and Information Technology, my country's lithium-ion battery shipments reached 324GWh in 2021, a year-on-year increase of 106%. 1GWh battery requires 856 tons of graphite, and the negative electrode binder consumes 3% of the negative electrode material. It can be estimated that 324GWh lithium batteries in 2021 require 8320 tons of SBR binder. Benefiting from the gradual advancement of the policy goals of "carbon peak" and "carbon neutrality" around the world, the demand for downstream new energy vehicle industry is expected to continue to grow in the next few years.

According to statistics from the High-tech Lithium Battery Research Institute (GGII), it is expected that China's lithium battery shipments will exceed 600GWh in 2022, and the year-on-year growth rate is expected to exceed 80%. It is expected that the shipment volume of China's lithium battery market in 2025 will exceed 1450GWh, corresponding to the demand for approximately 37,236 tons of SBR adhesive.

Considering the company's future expansion of latex production capacity, a new material research and development company has been established, with the main R&D directions in the field of environmentally friendly coating new materials and new energy. We expect the company to expand its current application of chemical products in the new energy field in the future.

Basic assumptions:

Due to large amounts of bad debts in 2021, the company's performance base is relatively low, so this year's performance is expected to usher in explosive growth. The company's special paper business is currently relatively stable, but considering that the price of special paper may fall after the pulp price falls, it is expected that the revenue of the special paper business will decline next year, and the year after that will benefit from the new capacity release of 60,000 tons.

The white card business of the company is mainly cigarette cards and food cards (liquid bags), and the prices are relatively stable. At the same time, due to the high price of wood pulp this year, the downstream bidding prices next year are expected to rise slightly compared with this year. The decline in wood pulp prices will effectively enhance the profitability of the company's white cardboard business.

In the middle and late stages, the company's white card business will benefit from the company's production capacity expansion. The chemical business may benefit from the expansion of product application scope, and will maintain relatively rapid growth with the subsequent production capacity being released.

expense side: Due to the gradual improvement of company integration, the sales expense rate and management expense rate have dropped slightly.

Guanhao Hi-Tech As a leading enterprise in the special paper industry, its product line mainly includes special paper, self-adhesive labels and special white cardboard. In the short term, the rebound in downstream demand and the decline in costs are beneficial to the further improvement of the company's performance.

In the medium and long term, the company's special paper business and white cardboard business will benefit from the company's own capacity expansion and its share in high-quality customers.

According to the above assumptions, we expect the company's revenue in 2022/2023/2024 to be 8.362/8.605/10.316 billion yuan, respectively, with EPS of 0.20/0.26/0.30 yuan, respectively, corresponding to the closing price of 3.72 yuan/share on November 28, and the PE of 18.4/14.4/12.2X respectively.

1) Macroeconomic fluctuations have caused downstream demand to be lower than expected: Due to the impact of the epidemic on consumption, employment and investment confidence, the weak macroeconomic has led to a decrease in downstream demand.

2) Raw material prices continue to fluctuate at high levels: Most of the raw materials of company are wood pulp. Today, the price of wood pulp continues to fluctuate at high levels. If the price of wood pulp cannot fall, it will have a certain impact on the company's profitability.

3) Zhanjiang Zhong Paper Paper Co., Ltd. China Paper Southern Base High-end Packaging New Materials Project is still in the stage of environmental impact assessment public announcement, and even if it is put into production, it is not easy to accurately judge the progress of asset injection caused by major shareholders fulfilling their commitment to avoid competition among the industry.

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