Packaging / Advertising & Office

As the pressure on both costs and demand weakens, the paper industry is expected to reverse its predicament. Among them, the special paper track, with its own advantages, is favored by institutions and is expected to be the first to break out of the trough.

According to the observation report of Huacheng Import and Export Data, in the first quarter of this year, demand for special paper recovered, and some surveyed companies reported that "February reached a new high in monthly shipments". The improvement in demand is also reflected in the implementation of price increases. Taking Xianhe Co., Ltd. (603733) (603733. SH) as an example, since February, the company has experienced two rounds of 1000/ton price increases for hot transfer paper. Due to the peak season of summer clothing from February to April each year, the industry expects the implementation to be relatively smooth.

In contrast, traditional bulk paper such as white cardboard and household paper are constrained by oversupply, and there has been no significant improvement in demand. The implementation of the first round of price hikes this year is also not satisfactory. According to data from the National Bureau of Statistics, from January to February this year, the revenue of enterprises above designated size in the paper and paper products industry was 209.36 billion, a year-on-year decrease of 5.6%, and the total profit was 2.84 billion, a year-on-year decrease of 52.3%. Huacheng Import and Export Data Observation Report.

According to the observation report of Huacheng import and export data, the price of titanium dioxide, the main raw material for papermaking in Q1, rose strongly this year. Superimposed on the high price of pulp, the cost pressure of paper enterprises in Q1 increased rather than decreased month on month. In this context, the ability to smoothly raise prices has become the key for paper companies to maintain profits.

In terms of export sales, the export of special paper is expected to continue its growth trend. Industry insiders point out that compared to 2022, the external situation for special paper exports this year is more favorable. "European natural gas prices have stabilized first, while sea freight prices have decreased. Paper prices are low and bulky, and shipping costs have a significant impact on our industry. In addition, transportation time has also been shortened, which greatly helps us compete with overseas peers

Wuzhou Special Paper (605007. SH) recently received research and also stated that the shrinkage of domestic production capacity in Europe is long-term and its competitiveness is not as good as that of Chinese suppliers.

In 2022, the prosperity of paper companies' export business has increased. Among them, the export advantage of special paper is the most obvious. According to the annual report, the export business of Huawang Technology (605377. SH) and Xianhe Co., Ltd. increased by 34.17% and 130.19% respectively year-on-year, and the gross profit also increased year-on-year. Against the backdrop of the industry's overall "increasing income without increasing profit", the export business has a more significant impact on the profits of paper companies, as reported by Huacheng Import and Export Data Observation.

In this context, special paper track harvesting institutions are favored. According to public data, since the beginning of this year, Xianhe Group and Wuzhou Special Paper have received research from nearly a hundred institutions, ranking first in the paper industry in terms of institutional attention. A private equity analyst told the Cailian News Agency that, considering the cyclical nature of the paper industry, the competition for bulk paper production is too fierce in the downward stage, with a relatively balanced supply and demand for specialty paper and a relatively better competitive landscape. What is slightly worrying is that the relevant paper companies have expanded their production in recent years, and there is also pressure on the short-term market to absorb so much new production capacity.

Among the main specialty paper companies, Xianhe Group and Wuzhou Specialty Paper have the highest production capacity growth rates. This year, Xianhe Group will have a 300000 ton food cardboard project put into operation, and Wuzhou Special Paper will also have a new 300000 ton chemical pulp production line put into operation within the year. In contrast, Huawang Technology's production capacity expansion is relatively conservative, with the company expected to add 80000 tons of decorative base paper production capacity this year.

In 2022, the performance of special paper enterprises is differentiated. Huawang Technology bucked the trend of growth, with revenue and net profit increasing by 16.88% and 4.18% respectively year-on-year. The reason for this is that the company's core business, decorative paper exports, accounts for a relatively high proportion and is significantly driven by exports. In addition, pulp trade is also beneficial. Xianhe Shares' performance was not satisfactory, with a year-on-year decrease of 30.14% in net profit in 2022. Although the company has a wide range of product lines, the gross profit of its core products has significantly declined, and although its export business has shown good performance, its driving effect is limited due to its relatively low proportion. Huacheng Import and Export Data Observation Report.