[ET Net News Agency, 17 November 2017] Deutsche Bank lifted its target price for Nine
Dragons Paper (NDP)(02689) to HK$10.98 from HK$7, and maintained its "sell" rating.
The research house said paper prices have defied its expectations in the last six
months, but DB believes they are not sustainable and the turning point is now.
China containerboard prices have come crashing down, falling by RMB1200/t or 19% in the
last two weeks. Aggressive inventory restocking during September-October by downstream box
makers has overdrawn even December-January 2018 paper demand, and a weaker-than-expected
11 November shopping season did not help either.
DB believes that prices should continue to fall in the coming months, as clearing up 3-4
months of inventories in the system will take time. The price cuts are also eating into
margins, with NDP's NP/t shrinking from RMB1,100/t in early November to RMB500-600/t
recently.
It said large mills in China are also losing market share to small mills, even after the
mill closures in 2017. NDP saw its market share (by sales volume) peak in 2016 at 21.3%
and actually decline to 19.2%. DB expects a further 2ppts market share decline for the
company by 2020 if new capacity comes out as planned.
Given the stronger-than-expected pricing and earnings in the last six months, DB revised
its FY2018/19 earnings for NDP by 109%/52%. (KL)