20180117-川财证券-2018_China_Equity_Market_Light_Manufacturing_Outlook_26页_2mb

2017-2018 Light Manufacturing Sector Summary

Core Content Overview

The light manufacturing sector, particularly in the areas of paper-making, packaging & printing, and customized household, underwent significant changes in 2017 and 2018. The sector as a whole saw weaker-than-expected performance in 2017, but certain sub-sectors, especially paper-making and customized household, showed resilience and growth potential. The supply-side reform and consumption upgrade trends were pivotal in shaping the industry landscape in 2018.

Key Trends and Insights

2017 Review

• Paper-making industry:

  • Benefited from supply-side reform and environmental policies.
  • Domestic waste prices surged due to restricted imports, improving profitability.
  • Leading companies saw significant performance gains.
  • The sub-sector grew by 0.17% YoY, outperforming others.
  • Revenue reached 89.78 billion RMB, net profit 8.43 billion RMB.
  • Pulp prices were expected to rise, with companies like Chenming Paper (000488.SZ) anticipated to expand production.

• Customized household industry:

  • Experienced strong performance, with 3Q17 revenue up 25.30% and net profit up 24.43%.
  • Seven companies went public in 2017, with most focusing on customized products.
  • Xiamen Goldenhome (603180), Sichuan Monarch Sanitary Ware (002798), and Guangxi Fenglin (601996) were highlighted as key players.

• Packaging & printing industry:

  • Suffered from weak performance, with 26.19% YoY decline.
  • Small and medium enterprises were eliminated due to rising costs and weak bargaining power.
  • Shenzhen Yuto Packaging Technology (002831) was recommended as a leading name.

2018 Outlook

• Supply-side reform continues, leading to industry consolidation and increased market concentration.
• Consumption upgrade drives company transformation and market demand for high-end products.
• Packaging & printing industry is expected to see improved profitability due to reduced cost impact and integration into high-value services.
• Customized household remains a growth driver, with brand-building and personalization becoming key factors.
• Paper-making industry is expected to maintain a tight supply-demand balance, with increased prices and higher industrial concentration.

Key Sub-Sectors

Paper-Making

• Supply-side reform and environmental policies tightened the industry.
• Domestic waste prices rose sharply, transmitting to downstream.
• White cardboard and coated paper prices were expected to increase due to narrowed supply and stable demand.
• Two-side offset paper has low profit elasticity due to low entry barriers and high competition.
• Leading companies like Shanying International (600567) and C&S Paper (002511) are expected to benefit from increased market share and production expansion.

Packaging & Printing

• Industry integration and transformation are expected to enhance profitability.
• Cost pressures were reduced in 2018 due to increased import volumes and downstream demand shift.
• Market concentration is rising, with leading companies like Shenzhen Yuto (002831) and Mys Group (002303) showing higher ROE and profitability.
• Corrugated board demand is expected to surge due to e-commerce growth.

Customized Household

• Customized products are gaining traction, with higher growth rates than the industry average.
• Real estate regulation impacted the sector, but leading companies with strong channels and innovation are less affected.
• Market expansion into 3rd and 4th tier cities is expected to reduce dependency on real estate.
• Customized household is seen as a performance driver due to modern consumption trends.

Risk Factors

• Weaker-than-expected economic growth.
• Fluctuations in raw material prices.
• Policy changes that could impact the import and export of waste paper and finished products.

Sector Valuation

• The light manufacturing sector has a P/E of 28x, lower than the historical average of 37x from 2012.
• Paper-making has the best valuation prospects, with P/E of 17.94x.
• Packaging & printing and customized household also show valuation advantages, at 32.33x and 35.37x, respectively.

Recommended Companies

• Paper-making:

  • Shanying International (600567)
  • C&S Paper (002511)

• Packaging & Printing:

  • Shenzhen Yuto Packaging Technology (002831)
  • Mys Group Co., Ltd (002303)

• Customized Household:

  • Xiamen Goldenhome (603180)
  • Sichuan Monarch Sanitary Ware (002798)
  • Guangxi Fenglin Wood Industry Group (601996)

Conclusion

The light manufacturing sector, especially paper-making and customized household, is poised for growth and transformation in 2018. The supply-side reform and consumption upgrade are the key drivers, enhancing profitability and market concentration. Packaging & printing is expected to see improvement through integration and cost optimization. The sector valuation is currently attractive, offering investment opportunities for companies with strong market positions and innovation capabilities.