FY25 results in line with preannouncement and our expectations
Nine Dragons Paper announced its FY25 results: Revenue increased 6.3% YoY to Rmb63.24bn, while net profit attributable to shareholders was Rmb1.77bn (excluding Rmb0.4bn in interest on perpetual bonds), in line with the company’s preannounced guidance. In particular, net profit attributable to shareholders rose 176% HoH to Rmb1.30bn in 2HFY25.
Trends to watch
We expect further incremental volume in FY26. The company reported that FY25 total sales volume rose 10% YoY (or 1.9mnt) to 21.5mnt, driven mainly by kraft paper (+1.10mnt), ivory board (+500,000t), and P&W paper (+400,000t). The company’s new production and sales dynamics reflected two key changes: 1) in the linerboard and corrugated board segment, it is optimizing its product mix by increasing the share of high-end kraft paper; and 2) it has accelerated capacity expansion for pulp and integrated pulp-paper products in recent years.
Looking ahead to FY26, the company disclosed that it commissioned 1.2mnt of ivory board paper, 350,000t of P&W paper, and 700,000t of chemical pulp in 1HFY26, with plans to add another 350,000t of P&W paper within the year.
We forecast paper production and sales volume to increase by more than 5% YoY in FY26. In addition, the company announced plans to commission 700,000t of ivory board paper in Chongqing and another 500,000t of ivory board paper in Tianjin in 1HFY27. We expect the company to extend the cost advantages of self-produced pulp to its legacy production bases, which currently face higher costs and weaker product structures, by enhancing pulp-paper integration in Guangxi and Hubei.
Upbeat on near-term recovery of linerboard and corrugated board prices. We estimate the company’s profit per tonne (before interest on perpetual bonds) at Rmb59/t in 1HFY25 and Rmb151/t in 2HFY25, with the sharp improvement in 2HFY25 largely attributable to increased self-produced pulp output and a notable decline in thermal coal prices. Looking ahead, price hikes for linerboard and corrugated board have progressed smoothly since July, supported by improving industry demand and rising domestic wastepaper prices. However, coal and domestic wastepaper prices also rose markedly QoQ, resulting in a slight increase in cost per tonne. Overall, we expect the company’s profit per tonne to recover modestly QoQ in July– September, contributing meaningful incremental profit.
FY26 capex remains elevated. In FY25, the company’s capex reached Rmb14.8bn (+15.7% YoY) at the peak of its expansion cycle, keeping free cash flow under pressure, while its debt-toasset ratio rose 1ppt YoY to 66%. For FY26, management guided capex at Rmb11bn (above prior guidance, mainly due to new pulp production lines in Chongqing and Tianjin, in our view), which remains high.
Financials and valuation
Considering the implementation of the company’s cost-cutting and efficiency-improvement measures, we raise our FY26–27 earnings forecasts 11% ,15% to Rmb2.75bn and Rmb2.88bn. The stock is trading at 0.5x and 0.4x P/B. We maintain OUTPERFORM rating and raise the target price by 17% to HK$7, implying 0.6x and 0.6x P/B, offering 22% upside.
Risks
Disappointing demand; sharper-than-expected pulp price volatility; adjustments to perpetual bonds and elevated gearing ratio.