Packaging / Advertising & Office

The annual report shows that for the fiscal year ending June 30, 2021, the company achieved revenue of approximately RMB 61.574 billion, a year-on-year increase of 19.93%. Profit attributable to shareholders was RMB 7.101 billion, a year-on-year increase of 70.35%. Earnings per share were RMB 1.51.

However, after Nine Dragons Paper announced its annual results, the stock price fell instead of rising. Let's see what happened?

On the evening of September 27, Nine Dragons Paper (02689.HK) announced its annual results. For the six months ended June 30, 2021, revenue increased by 19.9% to approximately RMB 61,574.1 million; gross profit margin increased by approximately 1.4 from 17.6% % To 19.0%; the company’s profit attributable to equity holders was approximately RMB 7.1011 billion, an increase of 70.4%, the basic earnings per share was RMB 1.51, and the proposed final dividend of RMB 33.0 cents per share.

The main source of the group’s sales revenue is the packaging paper business (including cardboard, high-strength corrugated paper and coated gray-bottomed whiteboard), which accounts for about 91.5% of the sales revenue. The remaining about 8.5% of the sales revenue comes from its cultural paper, high-priced specialty paper Paper and pulp products. At the same time, the group's sales revenue in the 2021 fiscal year increased by 19.9%. The increase in its revenue was mainly due to a year-on-year increase in product sales of approximately 7.8% and a sales price increase of approximately 14.4%.

The company's gross profit margin has also increased slightly, from 17.6% in the 2020 fiscal year to 19% in the 2021 fiscal year. The main reason is that the growth rate of product prices is much higher than the cost of raw materials.

Although Nine Dragons Paper has achieved such a high rate of profit growth, the dividends of soaring paper prices have not been fully enjoyed in the past fiscal year, because domestic paper prices have ushered in a new wave of rising since August. According to industry insiders, since August, the price of corrugated paper has risen one after another, and it is now between 3850 yuan and 4000 yuan. The surge in domestic waste paper raw materials this year is one of the main factors driving up the price of corrugated paper.

They also stated that about 15 million to 2,000 tons of foreign waste paper enters the country every year. However, after the country fully implements the policy of prohibiting the import of solid waste, many paper companies are forced to stop the import of waste paper, which leads to the supply of domestic waste paper. And the supply of pulp tends to be tight.

In addition, Nine Dragons Paper stated that it is building multiple papermaking projects. It is estimated that its annual paper production capacity will reach 23.82 million tons by the end of June 2024, with 6.25 million tons of newly added capacity to meet the huge demand in the future. At the same time, the company is also expanding its pulp projects in China and Malaysia, totaling 3.72 million tons, which will be completed in the next two years.

However, the huge increase in profits did not bring benefits to Nine Dragons stocks. The stock fell more than 4% yesterday, and fell more than 5% in early trading today. As of press time, it fell 5.09% to 9.89 Hong Kong dollars, with a turnover of 46.041 million Hong Kong dollars.

Lyon issued a research report, maintaining Nine Dragons Paper's "underperform" rating with a target price of 10.8 Hong Kong dollars. The bank said that although the average price is slightly better than expected, the gross profit margin is still low by 0.5 percentage point. Mainly affected by costs, operating profit margins were basically in line with expectations. The report mentioned that as the profit was better than the bank’s expectations, it mainly benefited from lower interest and tax expenses. However, the company’s rate of cut dividends dropped from 36% in the previous year to 28.4% in fiscal 2021, due to the increase in capital expenditures. Although some projects have been delayed.

Zhitong Finance APP learned that HSBC Research released a research report saying that it maintains Nine Dragons Paper (02689) "Buy" rating, the target price is reduced from 16.4 Hong Kong dollars to 13 Hong Kong dollars, and the 2022-23 fiscal year earnings per share forecast is lowered by 14.5% and 11. %. The company's net profit after tax in the second half of the year increased by 64% year-on-year, in line with the bank's expectations. However, due to the rising cost of coal and waste paper, the profit margin per unit was lower than the bank's expectations, partly offset by foreign exchange gains and lower tax rates.

According to the report, the adjusted net profit per ton in the second half of the year was RMB 394, which was lower than the RMB 456 in the first half of the year, and also lower than the level of supply shortage in the 2017-2018 fiscal year; the dividend was also lower than expected. According to the bank, there have been power cuts in many provinces in China. Although the paper industry is less affected, it will still be negatively affected. Supply and demand are expected to decrease. Therefore, it is no longer expected that profit margins will expand significantly in the fourth quarter.

The company pointed out that the current global epidemic is still evolving, and the external environment is even more complicated and severe. Looking forward to the coming year, with the further popularization of vaccines, the current global epidemic is expected to stabilize and the global economy is back on track. Under the new domestic dual-cycle development pattern, China's domestic demand and export industry will be revitalized. In the medium and long term, the use of paper to replace plastics and consumption upgrades will drive demand for high-end packaging paper such as white cardboard and high-end cattle cardboard. The tightness of raw materials and tightening of environmental protection policies are also conducive to the increase in industry concentration.