Morgan Stanley released a research report saying that Kowloon Paper (02689) lost more than expected for the full fiscal year, maintained a target price of HK$5.6, and remained “in sync with the market” rating.
The bank believes that the company's profit and loss will also be year-on-year in the second half of the fiscal year, hampered by weak demand and increased supply of paper in the market, leading to a decline in paper prices. Therefore, although sales volume remained flat throughout the fiscal year, gross profit also declined significantly.
The bank believes that although demand for packaging is recovering moderately, the company will start production with an additional production capacity of about 3 million tons in the next few months, which is an unfavorable factor. However, the high supply situation seems to continue to put pressure on paper prices and profits, while at the same time dragging down Jiu Paper's profits.