Daiwa Research maintained its target price for Nine Dragons Paper (NDP) (02689) unchanged at HK$13 but downgraded its rating to "hold" from "outperform".
The research house said it may be easy to deem NDP's new capex plan "excessive", but Daiwa believes the investments are a long-term positive.
However, Daiwa said the hastiness of NDP's investment indicates that some of this spending is an attempt to catch up and suggests that the industry's current OCC shortage could be worse than what management expects. Given that profitability likely peaked in 1H FY2021, earnings visibility is low in FY2022-23 and the recent rally in its share price, Daiwa believes this is a good profit-taking opportunity.
It cut its FY2021 core EPS estimate by 1% but slashed its FY2022-23 estimates by 9-24% as it factored in greater gross margin compression and increased finance costs.