[ET Net News Agency, 25 September 2019] BofA Merrill Lynch said Nine Dragons Paper's
(NDP)(02689) FY2019 NPAT plunged 51% to RMB3.86bn, in line with the profit alert
previously.
The research house said the consecutive RMB50/t price hikes since August are solid
evidence of demand recovery. Management shared sales volume in August has improved to
1.4mt and it is now on track to reach 1.5mt in September. As a result, paper inventory
levels have come down to 800kt or slightly less than 3 weeks at the moment.
With better volume, BofAML estimated net margin has now improved to RMB250-300/t.
Despite this, BofAML sees limited catalysts pushing it higher, as the company now
prioritizes putting the new capacity of 0.35mt in Quanzhou and 0.6mt in Shenyang into
operation in 4Q rather than pushing prices higher. The acquisition of recycle pulp
capacity would be completed within the month and BofAML believes it gives NDP an edge to
cope with the diminishing OCC import quota versus peers.
With the new capacity, it believes the company could deliver volume growth with decent
margin in the medium term. It reiterated its "buy" rating, with a target price of
HK$8.(KL)