Nine Dragons Paper(02689.HK)：New projects strengthen pulp and paper integration; first dividend in nearly three years

机构：中金公司
研究员：Yan CHEN/Lan LOU

FY26 results in line with preannouncement and our expectations
Nine Dragons Paper (NDP) announced its FY26 results: Revenue rose 19% YoY to Rmb75bn, and net profit attributable to shareholders grew 102.6% YoY to Rmb3.58bn, in line with the firm’s previous profit alert and our expectations. In 2HFY26, net profit attributable to shareholders fell 18% HoH to Rmb1.61bn, mainly due to a non-operating impairment of its US assets. Excluding the non-operating impairment, FY26 net profit attributable to shareholders was about Rmb4bn. The firm’s FY26 sales volume rose 14% YoY to 24.5mnt, ASP increased 4% YoY to about Rmb3,060/t, and we estimate net profit per tonne rose 78% YoY to about Rmb146/t.
Trends to watch
FY27 capex guidance remains high; new projects deepen pulp and paper integration and drive product mix upgrades. The firm announced FY27 capex guidance of about Rmb11bn, mainly due to several new pulp and paper projects: 1) The relocation of an existing 600,000t linerboard production line from Dongguan to Beihai and its upgrade to 700,000t, which the firm expects to complete in 2Q27; 2) the addition of 620,000t of linerboard capacity in Dongguan, which the firm expects to complete in 4Q27; and 3) the addition of a 600,000t wood pulp production line in Taicang, which the firm expects to complete in 2Q28.
In addition, the firm stated at its FY26 results briefing that it plans to add tissue paper production lines at certain production bases to utilize more of its in-house wood pulp production and diversify its profit sources. The firm estimates that by end-June 2028, its papermaking capacity could reach 26.09mnt and its wood pulp and recycled pulp capacity could reach 9.22mnt, with major production bases largely achieving integrated wood pulp production and the proportion of high-end products continuing to increase.
Announces first dividend since FY23. The board proposed a final dividend of Rmb0.10/sh for FY26, implying an estimated payout ratio of about 13%. Including coupons on perpetual capital securities, we estimate the total FY26 payout ratio at about 21%.
Upbeat on a recovery in packaging paper prices during the traditional peak season. We have observed that packaging paper mills have recently issued a series of price increase notices covering linerboard, corrugating medium, and bleached folding boxboard. Given that the domestic market is currently in the traditional September–October peak season, we expect packaging paper prices to recover, driving an improvement in the firm's earnings.
Financials and valuation
Considering the firm's elevated debt levels and financial costs resulting from the redemption of perpetual capital securities, we lower our FY27 net profit forecast 5% to Rmb4.26bn and introduce our FY28 net profit forecast of Rmb4.46bn. The stock is trading at 0.4x FY27–28e P/B. We maintain our rating and cut our target price 17% to HK$10, implying 0.7x FY27–28e P/B with 65% upside, given our earnings forecast revisions and the firm's rising debt levels.
Risks
Disappointing demand; sharp fluctuations in pulp prices; higherthan- expected capex.