Metal Packaging Industry Inflection Point Is Approaching, Industry Profits Are Expected To Continue To Recover

The metal packaging industry has experienced continuous expansion of capacity in the past few years and declining profits. At present, the industry's willingness to expand production has weakened significantly. With the completion of industry capacity construction, the promotion of integration and mergers and acquisitions of domestic leading companies, and the decline of raw material prices, the profit margin of the metal packaging industry is expected to continue to recover.

In the first half of 2024, although revenue growth was poor due to overall weak consumer demand, profitability improved due to falling raw material prices and optimization of capacity layout. For example, the gross margin of Auerijin in the first half of 2024 was 17.82%, up 1.88 percentage points year-on-year, mainly due to the decline of raw materials. The average price of tinplate in the first half of 2024 was 6,546 yuan/ton, down 4.7 percentage points year-on-year. Aluminum prices also fell from a peak of 24,240 yuan/ton in 2021 to 19,695 yuan/ton on September 23, 2024. With the completion of industry capacity construction and the promotion of integration and merger of head companies, the profit margin of metal packaging industry is expected to continue to recover, and the inflection point of the industry is expected to accelerate.

In 2023, enterprises above designated size in China's metal packaging industry will achieve a total revenue of 150.562 billion yuan from their main business, accounting for about 13% of the total output value of the packaging industry, which is still far behind the global level of 45%-50%. Two - and three-piece drink cans accounted for the highest proportion. At present, the supply and demand of three-piece cans are basically balanced. In 2022, the output of China's three-piece can industry will be about 31.05 billion cans, and the demand will be about 30.53 billion cans. Due to the stable cooperative relationship between major beverage companies and suppliers, the leading pattern of metal packaging is relatively stable. Under the background of stable customer structure and industry pattern, the average ex-factory price of three-piece can enterprises has shown a trend of stability and rising in recent years.

From the perspective of the US packaging industry, leading growth accelerated and profitability improved after mergers and acquisitions. According to Huafu Securities, in the first round of integration period (1990-2000), Crown acquired a number of food metal packaging, plastic packaging targets; In the second round of integration period (2000-2016), Boer began to accelerate the pace of mergers and acquisitions, mainly targeted at local aluminum can companies. Boer's annual revenue growth reached 6.4 per cent from 2016 to 2023, up from 4 per cent previously, while Crown's 5.5 per cent from 2016 to 2023 was up from 2 per cent previously. In addition, benefiting from industry consolidation, Crown's operating profit margin center increased from 8% to 10% in the first round of consolidation, and Boer's overall operating profit margin center increased from 6% to 9% in the second round of consolidation.

Specifically, take Boer as an example, its gross profit margin and net profit margin center are about 20% and 5% respectively in recent years. In 2023, Bohr beverage packaging's revenue will be 11.32 billion US dollars, with gross margin and net margin of 19.0% and 5.1% respectively, and ROE of 19%. While the ROE of domestic metal packaging leaders is in the range of 6%-11%, there is a great room for improvement compared with Bohr.

Huafu Securities pointed out that after the first round of domestic integration from 2016 to 2019, the two can industry gradually formed Baosteel packaging, Auruijin, COfCO packaging, three main competition pattern, but the share gap between each other is small, if the equity acquisition for COfCO packaging finally landing, the industry pattern will be more clear, the improvement of the leading voice, conducive to profit growth. In 2023, the operating profit margin of major Chinese metal packaging companies will be between 4% and 7%, which is similar to the overall operating profit margin of overseas companies before integration, while after the first round of integration, the operating profit margin of metal packaging business of overseas companies in 2004 will be between 9% and 12%, after the second round of integration, The operating margin of metal packaging business of overseas companies in 2023 will be between 9% and 17%.From this point of view 2025 years of metal packaging industry as a whole