Guojin Securities: Maintaining Nine Dragons Paper's (02689) Purchase Rating Pulp and Paper Continued Layout

The Zhitong Finance App learned that Guojin Securities released a research report saying that the supply and demand pattern in the box board corrugated paper industry has improved, and paper prices have entered an upward channel, and Nine Dragons Paper (02689) has fully benefited as the leading boxboard corrugated paper leader; as wood pulp production capacity is being put into operation one after another, the raw material self-sufficiency rate has increased significantly, and profit flexibility has increased during the paper price increase cycle. The bank expects net profit to be 42.4/46.0/4.97 billion yuan for the 27-29 fiscal year, +18.51%/+8.3%/+8.1% year-on-year. The PE valuation corresponding to the current stock price is 5.6/5.1/4.8 times, maintaining a “buy” rating.

Guojin Securities's main views are as follows:

Brief performance review

On September 23, the company announced the 2026 fiscal year results. In fiscal year 2026, the company achieved revenue of 75.0 billion yuan, +18.6% year on year, gross profit of 10.92 billion yuan, +50.8% year on year (gross profit margin 14.6%, +3.1 pct year on year), and net profit to mother of 3.58 billion yuan, +102.6% year on year (net profit ratio 4.8% to mother, +2.0pct year on year). Excluding depreciation of US base assets and disposal gains and losses, the net profit returned to the mother after restoration was about 4 billion yuan.

Management analysis

The volume and price of the company rose sharply in fiscal year 2026, and the net profit of tons of paper rose sharply. Sales volume in fiscal year 2026 reached about 24.5 million tons, +14% year over year. The increase in sales volume was mainly driven by an increase in domestic business sales of about 2.6 million tons; the average sales price of tons of paper was about 3061 yuan/ton, +4% year over year; net profit per ton was about 146 yuan/ton, +78% year over year, mainly due to a larger and faster increase in the average price of products than on the cost side.

A number of new projects to be put into operation have been announced, and the integrated layout of pulp and paper continues. (1) The 600,000 tons of kraft paper production capacity at the Dongguan base will be relocated to Beihai and upgraded to 700,000 tons, and is expected to be put into operation in 27Q2; (2) the Dongguan base plans to build a new 620,000 tons of kraft paper production capacity, which is expected to be put into operation in 27Q4; (3) the Taicang base is expected to start production of 600,000 tons of fiber replacement pulp in 2028Q2. In addition to the original announced proposed projects, after all projects are put into operation, the total design capacity of the company will reach about 26.1 million tons, and the total design capacity of wood pulp will exceed 8.5 million tons. The wood pulp production capacity layout will achieve full coverage of core regions such as South China, Central China, East China, Southwest China, North China, and Northeast China, supporting the continuous upgrading of the product structure. In addition, the company plans to add tissue production lines at some of its bases to digest wood pulp and increase profits.

The company resumed dividends in fiscal year 2026, with subsequent goals to reduce debt and increase shareholder returns. The company plans to pay a dividend of RMB 10 per share (HK11.6 HK cents), with a dividend ratio of about 13.2%. If redemption of perpetual bonds is considered, the dividend ratio is even higher. The price of corrugated paper for Q4 boxes is bullish. Q4 is about to enter the peak demand season, and box board corrugated paper companies have recently issued 4 rounds of price increase letters, each with a price increase of 50 yuan/ton. They are optimistic about the short-term rise in the price of corrugated board, and the company is expected to benefit as an industry leader.

Risk Alerts

Macroeconomic fluctuations have caused demand to fall short of expectations; industry competition has intensified; the pace and rise in new production capacity has fallen short of expectations; and high financial leverage.