[ET Net News Agency, 19 January 2018] Daiwa Research trimmed its target price for Nine
Dragons Paper (NDP)(02689) to HK$17 from HK$20, and maintained its "buy" rating.
After a 20% share-price drop for NDP in the past three months, concerns regarding a
major deterioration in the industry's supply-demand dynamics appear overdone, said the
research house.
Daiwa believes NDP will remain a beneficiary of stricter environmental policies and be
least impacted by a decline in import quotas, which should drive net profit per tonne of
at least CNY390 in FY2018-20.
While NDP's net profit per tonne likely peaked in 1H FY2018 (CNY545, as suggested in the
company's positive profit alert announced on 15 December 2017), Daiwa believes this
should be viewed as a natural decline off an unsustainably high base. Even with the
expected rise in net industry capacity, the research house believes the company will still
generate at least CNY400 per tonne in profit in 2018.
It lowered its FY2019-20 EPS forecasts by 8-9%, mainly due to the assumption that NDP
will use a higher proportion of domestic OCC, which would likely reduce margins. (KL)