Packaging / Advertising & Office

With the implementation of the "plastic restriction order" and other policies, the demand of the paper product packaging industry is strong, and the paper packaging manufacturers are raising funds to expand their production capacity through the capital market.

Recently, China's leading paper packaging company Dashengda has received feedback from the CSRC. Dashengda plans to raise no more than 650 million yuan this time to invest in projects such as the intelligent R&D and production base of paper pulp molded environment-friendly tableware. Not only that, according to the observation report of Huacheng import and export data, since this year, many companies in the paper packaging industry are rushing to IPO to complete the capacity expansion strategy with the help of the capital market. On July 12, Fujian Nanwang Environmental Protection Technology Co., Ltd. (hereinafter referred to as "Nanwang Technology") submitted the application draft of the prospectus for the initial public offering of shares on the GEM. This time, it plans to raise 627 million yuan, mainly for the paper product packaging project.

According to the Huacheng Import and Export Data Observation Report, people from Dashengda said that the implementation of "plastic restriction order" and other policies in recent years has increased the demand of the whole paper packaging industry. At the same time, as a leading enterprise in the industry, the company has strong comprehensive strength, and the expansion and improvement of profits are in line with the company's long-term development strategic objectives.

The industry continues to increase production capacity, indicating that the enterprise is very optimistic about the future of the market. Whether it is the rapid development of the national economy, the export of products, the future development of e-commerce, or the implementation of the "plastic restriction order" policy, it will provide huge market demand. Based on this, leading enterprises in the industry increase their investment scale to improve market share, maintain market competitiveness and achieve economies of scale, Huacheng Import and Export Data Observation Report.

Policies stimulate market demand

According to the public information, Dashinda is mainly engaged in the research, development, production, printing and sales of paper packaging products. Its products cover corrugated cartons, cardboard, fine wine boxes, cigarette trademarks, etc., as well as a comprehensive paper packaging solution that provides packaging scheme design, research and development, testing, production, inventory management, logistics distribution and other links.

Paper packaging refers to the commodity packaging made of paper and pulp as the main raw materials. Its strength is high, moisture content is low, air permeability is small, non corrosive, and it has certain water resistance. The paper used for food packaging also requires sanitation, sterility, and no pollution impurities.

Under the policy guidance of the "plastic restriction order", the "Opinions on Accelerating the Green Transformation of Express Packaging" and the "Notice on Printing and Distributing the" Fourteenth Five Year Plan "Action Plan for Plastic Pollution Control", the demand for paper-based products is expected to rise significantly.

Qiu Chenyang said that with the improvement of people's environmental awareness, many countries have issued "plastic restriction orders" or "plastic prohibition orders". For example, New York State of the United States began to implement the "plastic ban order" on March 1, 2020; EU member states will ban the use of disposable plastic products from 2021; In January 2020, China issued the Opinions on Further Strengthening the Control of Plastic Pollution, which proposed that by 2020, it would be the first to ban and restrict the production, sale and use of some plastic products in some regions and areas.

The use of plastic products in daily life is gradually limited, and green packaging will become an important development trend of the packaging industry. Specifically, food grade cardboard, environment-friendly paper and plastic lunch boxes will benefit from the gradual prohibition of disposable plastic tableware and the increased demand; Environmental protection cloth bags, paper bags, etc. will benefit from the policy requirements and be promoted in shopping malls, supermarkets, pharmacies, bookstores and other places; The box board corrugated paper packaging benefited from the fact that the express plastic packaging was prohibited.

In fact, the demand for packaging paper is closely related to the demand change of downstream consumer industries. In recent years, food, beverage, household appliances, communication equipment and other industries have shown a high degree of prosperity, effectively driving the growth of the paper packaging industry.

According to the observation report of Huacheng's import and export data, affected by this, Dashengda will achieve an operating income of about 1.664 billion yuan in 2021, an increase of 23.2% year on year; In the first three quarters of 2022, the realized operating income was 1.468 billion yuan, with a year-on-year growth of 25.96%. Jingjia Shares (002,191. SZ) achieved a revenue of 5.067 billion yuan in 2021, with a year-on-year growth of 20.89%. The main revenue in the first three quarters of 2022 was 3.942 billion yuan, with a year-on-year growth of 8%. In 2021, Hexing Packaging (002228. SZ)'s operating income will be about 17.549 billion yuan, with a year-on-year increase of 46.16%.

Qiu Chenyang said that in recent years, as the global packaging industry has gradually shifted to developing countries and regions represented by China, China's paper product packaging industry has become increasingly prominent in the global paper packaging industry, and has become an important paper product packaging supplier in the world, with the export scale expanding.

According to the statistics of China Packaging Federation, in 2018, the total import and export volume of China's paper product packaging industry was 5.628 billion US dollars, up 15.45% year on year, of which the export volume was 5.477 billion US dollars, up 15.89% year on year; In 2019, the total import and export volume of China's paper packaging industry was 6.509 billion US dollars, of which the export volume was 6.354 billion US dollars, with a year-on-year growth of 16.01%; In 2020, the total import and export volume of China's paper packaging industry will be 6.76 billion US dollars, of which the export volume will be 6.613 billion US dollars, with a year-on-year growth of 4.08%. In 2021, the total import and export volume of China's paper product packaging industry will be 8.84 billion US dollars, of which the export volume will be 8.669 billion US dollars, with a year-on-year growth of 31.09%.

Continuous improvement of industry concentration

Under the background of strong demand, paper packaging enterprises are also increasing their capacity, and the industry concentration continues to improve.

On July 21, Dashengda released the plan for non-public issuance of shares, with a total amount of 650 million yuan to be raised. The funds raised will be invested in the pulp molding environmental friendly tableware intelligent research and development production base project, Guizhou Renhuai Baisheng intelligent paper wine box production base construction project and supplementary working capital. Among them, when the project of intelligent R&D and production base for pulp molded environment-friendly tableware reaches its capacity, it will have an annual production capacity of 30000 tons of pulp molded environment-friendly tableware. After the completion of the construction project of Guizhou Renhuai Baisheng Intelligent Paper Wine Box Production Base, the annual output of 33 million fine wine boxes and 24 million card boxes can be achieved.

In addition, Nanwang Technology is going public on the GEM. According to the prospectus, Nanwang Technology plans to raise 627 million yuan in this GEM listing. Among them, 389 million yuan was used for the construction project of 2.247 billion green and environment-friendly paper products intelligent factories annually, and 238 million yuan was used for the paper products packaging production and sales project.

Dashengda said that this project is used to increase the company's environmental protection tableware business, further expand the liquor packaging business, enrich the company's product business line, and improve the company's profitability.

An insider said that the medium and high-end corrugated box enterprises with a certain scale and strength in the industry all aim to further expand the scale of production and marketing and increase the market share.

Due to the low entry threshold of manufacturers in the paper product packaging industry in China and the wide range of downstream industries, a large number of small carton plants depend on local demand to survive. There are many low-end small and medium-sized carton plants in the industry, forming an extremely decentralized industry pattern.

At present, there are more than 2000 large-scale manufacturers in the domestic paper product packaging industry, and most of the manufacturers in the industry are small and medium-sized enterprises. Although after years of development, there have been a number of large-scale and technologically advanced production enterprises in the industry, as a whole, the concentration of the paper product packaging industry is still low, and the industry competition is fierce, forming a fully competitive market pattern.

The above insiders said that in order to cope with the increasingly fierce market competition, the advantageous enterprises in the industry continued to expand their production scale or carry out reorganization and integration, take the path of large-scale and intensive development, and the industry concentration continued to increase.

Increased cost pressure

According to the observation report on the import and export data of Huacheng, although the demand of the paper packaging industry has been increasing in recent years, the industry profit has declined.

The financial report shows that from 2019 to 2021, Dashengda's net profit attributable to the parent company after deducting non profits is RMB 82 million, 38 million and 61 million respectively. It is not difficult to see from the data that the net profit of Dashengda has declined in recent years.

In addition, the prospectus of Nanwang Technology shows that from 2019 to 2021, the gross profit margin of the company's main business is 26.91%, 21.06% and 19.14% respectively, showing a downward trend year by year. The average gross profit margin of 10 comparable companies in the same industry was 27.88%, 25.97% and 22.07% respectively, showing a downward trend.

According to the Operation Overview of the National Paper and Paperboard Container Industry in 2021 issued by the China Packaging Federation, in 2021, there will be 2517 enterprises above the designated size in the paper and paperboard container industry (all industrial legal persons with an annual operating revenue of 20 million yuan or more) in China, with an accumulated operating revenue of 319.203 billion yuan, a year-on-year increase of 13.56%, and an accumulated total profit of 13.229 billion yuan, a year-on-year decrease of 5.33%.

Dashengda said that the main raw material for the production of corrugated boxes and paperboards is base paper. During the reporting period, the cost of base paper accounted for more than 70% of the cost of corrugated boxes, which is the main operating cost of the company. Since 2018, the price fluctuation of base paper has intensified due to the rise in the prices of bulk commodities such as international waste paper and coal, and the impact of production restriction and closure of a large number of small and medium-sized paper mills under the pressure of environmental protection. The change of base paper price has a greater impact on the company's operating performance. As a large number of small and medium-sized paper mills are forced to limit production and shut down under the pressure of environmental protection, and the country further restricts the import of waste paper, the supply side of base paper will continue to bear huge pressure, the supply and demand relationship may still be unbalanced, and the price of base paper may rise.

The upstream of the paper product packaging industry is mainly paper making, printing ink, machinery and equipment, while the downstream is mainly food and beverage, daily chemical products, tobacco, electronic appliances, medicine and other major consumer industries. Among the upstream raw materials, the proportion of base paper in the production cost is high.

Qiu Chenyang told the reporter that in 2017, the General Office of the State Council issued the Implementation Plan for the Reform of the Management System of Prohibiting the Entry of Foreign Garbage and Promoting the Import of Solid Wastes, which made the import quota of waste paper continue to be tightened, the raw materials of raw paper and waste paper were restricted, and their prices began to rise all the way. The price of base paper continues to rise, forming a great cost pressure on downstream enterprises (packaging plants, printing plants). During the period from January to February 2021, the price of industrial base paper will rise unprecedentedly. The price of specialty paper will generally rise by 1000 yuan/ton, and some paper types will even jump by 3000 yuan/ton at one time.

Qiu Chenyang said that the paper product packaging industry chain is characterized by "concentration in the upstream and dispersion in the downstream".

In Qiu Chenyang's view, the concentration of the upstream paper industry is relatively high. Large enterprises such as Jiulong Paper (02689. HK) and Chenming Paper (000488. SZ) have occupied a large number of market shares, and their bargaining power is strong, which makes it easy to transfer the price risk of waste paper and coal raw materials to downstream packaging enterprises. While the downstream industry covers a wide range, almost all consumer goods manufacturing industries need packaging enterprises as supporting links in the supply chain. Under the traditional business model, the paper product packaging industry almost does not rely on a specific downstream industry. Therefore, the packaging enterprises in the middle have poor bargaining power in the entire industrial chain.