Zheshang Securities released a research report saying that it maintained the “buy” rating of Nine Dragons Paper (02689). Overall, the impact of FY23H2 imported paper and demand recovery fell short of expectations, putting pressure on the company's FY23 performance. Considering that the current demand environment is still at the bottom, the FY24-FY25 profit forecast was lowered. It is expected that FY23-FY25 will achieve revenue of 611/772/88.6 billion yuan, -5%/+26%/+15% over the same period, achieving net profit of 24.1/29.8/415 billion yuan. Since paper prices, inventory, and raw materials are all at the bottom, the cost performance ratio of domestic paper is beginning to show. Optimism that this round of price increases will drive 23H2 profits to bottom up.

Looking ahead to 23H2, inventory & paper prices & raw materials are at the bottom of the inventory dimension, industry profits are expected to rise in the inventory dimension. According to Zhuochuang data, the number of inventory days for boxboard paper companies in North China in July was 17.03 days, which is at the center of history; in the paper price dimension, according to Zhuochuang data, as of August 25, the boxboard/corrugated paper was 3,709/2743 yuan/ton, which is at the bottom of history since 17 years; in terms of raw materials, as of August 25, the national waste price is 1,511 yuan/ton. In July, the average monthly import price of box board paper was 462 US dollars/ton, and the average price of corrugated paper was 382.13 US dollars/ton. As the price of domestic paper continues to drop, considering its service efficiency advantages, the price advantage of imported paper is no longer obvious. Currently, leading paper companies such as Nine Dragons have issued price increase letters one after another. Considering inventory, paper prices, and raw material prices, the cost performance ratio of domestic paper compared to imported paper is showing, and it is gradually entering the peak season preparation stage. They are optimistic that this round of price increases will be implemented, and industry profits are expected to rise.

According to the report, by the end of 2022, the company currently has a production capacity of 21.32 million tons, including 1138/340/145/115/112/27/2.55 million tons of cardboard/high-strength corrugated paper/ coated whiteboard/white cardboard/cultural paper/special paper/raw materials, respectively. The difficult period of industry expansion bucked the trend. It is expected that more than 10 million production capacity will be achieved in 3 years, accelerating the concentration of the industry pattern. In the 23-25 fiscal year, the company is expected to add 13.43 million tons, of which papermaking plans to expand production by 6.85 million tons. In addition, the company will increase the expansion of pulp and paper, enrich the product structure, and enter the raw material layout into the release period. In 23-25, the production capacity of core raw materials such as wood pulp will be released by 6.58 million tons, of which wood pulp/recycled pulp/wood fiber will expand production by 392/60/2.06 million tons. It is optimistic that the company will rely on resource advantages as a long-term advantage.