Small and mid-cap companies with both growth and dividends—HuaWang Technology

Over the past year, under the combined influence of "high-quality development of listed companies" and the "New National Nine Articles," the dividend theme has become a new market favorite.

(China Securities Index Network)

As of April 26, the CSI Dividend Index has risen by 10.71% year-to-date, significantly outperforming the Shanghai Composite, Shenzhen Component, and ChiNext indices. Its 1-year/3-year/5-year annualized returns are 2.93%, 3.79%, and 3.18%, respectively. This is just the stock price appreciation; if dividend returns are included, the short-, medium-, and long-term total return levels of the CSI Index will exceed 5%.

Among high-dividend stocks, many are mature companies with limited growth potential. Companies that can steadily improve both growth and dividend returns are rare, and Huawang Technology, a small-to-mid-cap company specializing in decorative paper, is one of them.

1. Growth and Dividends Combined: Huawang Technology Has Maintained a Steady Trend Since Its IPO.

(Huawang Technology Financial Report Data)

From 2015 to 2023, Huawang Technology's revenue increased from 592 million yuan to 3.976 billion yuan, with a compound annual growth rate (CAGR) of 26.9%.

(Huawang Technology Financial Report Data)

During the same period, Huawang Technology's net profit attributable to shareholders rose from 61 million yuan to 528 million yuan, with a CAGR of 31%.

(iFind)

From 2020 to 2022, Huawang Technology's dividend payouts were approximately 122 million yuan, 172 million yuan, and 171 million yuan, with dividend payout ratios of 47.05%, 38.51%, and 36.62%, respectively.

Earlier this year, Mr. Dou Jianghao, Chairman of Huawang Technology, submitted a "Proposal on Cash Dividends for Hangzhou Huawang New Materials Technology Co., Ltd. in 2023 and 2024," suggesting a cash dividend of no less than 8.50 yuan per share (tax inclusive) based on the total shares outstanding after deducting shares in the company's repurchase account. After the annual report was released, I was pleasantly surprised to find that Huawang Technology's dividend payout was even higher. The company plans to distribute a cash dividend of 11.00 yuan per share (tax inclusive) and issue a 4-for-10 stock dividend. The total dividend payout for 2023 is approximately 362 million yuan (tax inclusive), with a dividend payout ratio as high as 63.94%!

Meanwhile, among paper companies that have disclosed 2023 dividend plans, Huawang Technology's dividend payout ratio ranks among the highest, far exceeding the industry average.

In the annual report, Huawang Technology also disclosed plans for an interim dividend in 2024 based on actual operating conditions, potentially becoming one of the first small-to-mid-cap A-share companies to announce an "interim dividend."

2. Rising Metal Prices Boost Cyclical Stocks; Paper Companies Raise Prices, Creating an Expectation Gap for Huawang Technology.

This year, due to expectations of Fed rate cuts and economic recovery, prices of LME copper and gold have risen, with companies like Zijin Mining and CMOC hitting record highs. In fact, beyond the metals sector, prices of other commodities like paper products have also increased to varying degrees.

Data from the National Bureau of Statistics show that from January to February 2024, China's machine-made paper and paperboard output reached 22.416 million tons, up 11.9% year-on-year, continuing the strong growth trend since the second half of 2023. Moreover, the January-February 2024 output exceeded 2022 levels, setting a new historical record. During the same period, the paper and paper products industry's revenue reached 213.55 billion yuan, up 7.5% year-on-year, while profits surged 336.7% to 6.42 billion yuan!

On March 22, domestic prices for bleached hardwood/softwood pulp rose by 400 yuan/ton (7.9%) and 300 yuan/ton (5.0%) compared to the beginning of the year. Meanwhile, major white cardboard producers like Nine Dragons Paper, Chenming Group, International Paper, and Asia Symbol (Jiangsu) have issued price increase notices, with hikes as high as 200-300 yuan/ton. Among these, tissue paper price increases took effect on March 25, while white cardboard and cultural paper price hikes are set for April 1.

(Business Society)

Data from Business Society show that as of April 24, softwood pulp prices are at their highest level in nearly a year. On the other hand, waste paper prices are at their lowest since 2021, showing signs of a "double bottom" rebound. Further price hikes by paper companies cannot be ruled out. Once the price increase trend solidifies, Huawang Technology, which specializes in decorative paper, could see improved gross margins.

In terms of production and sales, Huawang Technology's capacity utilization and sales rates have remained high. The company operates eight advanced decorative paper production lines globally, capable of producing over 500 customized varieties. Last year, the "Annual 180,000-ton Specialty Paper Production Line Expansion Project (Phase I: 80,000 tons)" in Ma'anshan was successfully put into operation. It is reported that the second "Annual 80,000-ton Decorative Paper" production line in the Ma'anshan project will commence operations in the second half of this year. Combined with product price increases, this could create a double boost for the stock price.

In terms of overseas expansion, Huawang Technology is one of the few domestic companies capable of competing directly with global high-end decorative paper manufacturers.

(iFind)

In 2023, Huawang Technology's overseas sales reached 780 million yuan, up 66.9% year-on-year, accounting for 19.62% of total revenue—the highest level since its IPO.

Since the beginning of the year, renowned pulp producer Suzano has raised wood pulp prices by $240/ton and $180/ton in Europe and the U.S., respectively, compared to a $70/ton increase in Asia. Huawang Technology's export revenue is expected to hit new highs this year.

3. Huawang Technology's Fundamentals Outperform Peers. Share Concentration Is Increasing, and the Company Is Likely to Maintain a Steady Trend in the Medium Term.

(iFind)

As of the close on April 29, Huawang Technology's core metrics—such as PE (TTM) and ROE—outperformed comparable peers. Notably, since its IPO, Huawang Technology has shown a steady upward trend with lower volatility compared to the Shanghai Composite and other major indices. Coupled with its high dividend yield, it is a stock suitable for medium-to-long-term investors who can "hold on" to their positions.

$HUAWON(605377.SH) recently announced a broad employee stock ownership plan, which will help control administrative expenses and improve operational efficiency, making it one of the better-managed small-to-mid-cap companies.

(iFind)

By the end of Q1 this year, Huawang Technology's shareholder count had dropped to just 7,936—the lowest since its IPO—indicating significantly increased share concentration. Whether judged by fundamentals, technicals, internal controls, or share concentration, Huawang Technology stands out as a small-to-mid-cap company worthy of close attention!