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Preannounced net profit beat our and market expectations Nine Dragons Paper (NDP) preannounced its 1HFY26 results, estimating that attributable net profit ranged between Rmb2.15bn and Rmb2.25bn. Excluding interest from perpetual bonds, its adjusted attributable net profit might have increased 315–337% YoY to Rmb1.95–2.05bn in 1HFY26, beating our and market expectations. We think the firm’s sales volume was around 12mnt in 1HFY25, with per-tonne net profit standing at around Rmb160. We attribute its stronger-than-expected preannounced results to relatively low costs and high output of its self-produced pulp.
Trends to watch
Black paper: Profit of linerboard and corrugated board recovered steadily. In 2H25, prices of linerboard and corrugated board soared due to rising prices of waste paper and the traditional peak season for the sector. We think the firm’s per-tonne net profit from this business recovered steadily to around Rmb100 in 2H25.
In our view, supply in the industry will likely stabilize in 2026, with only Sun Paper’s 60t capacity (accounting for 1% of total sales volume of the sector) being scheduled to come online in 4Q26. On the demand side, we expect steady growth. Overall, we believe the sector will bottom out and recover driven by improving supply-demand dynamics. NDP is a leading linerboard and corrugated board supplier, with domestic market share approaching 25%. We believe its earnings will benefit from the recovery of the linerboard and corrugated board sector.
White paper: Output and profit of self-produced pulp may exceed market expectations. NDP announced that its pulp output in FY25 was 3mnt. Given the capacity expansion at its new production line, we estimate that its pulp output in 1HFY26 exceeded 2mnt, contributing to stronger-than-expected earnings. In addition, as the firm's self-sufficiency ratio of pulp approaches 100%, we believe its excess profit relative to peers is increasing. We estimate that its average per-tonne profit of white paper (i.e., P&W and ivory board paper, which are allocated to pulp on an accounting basis) exceeded Rmb300 in 1HFY26.
We expect the financial statements to improve in FY26. According to corporate filings, NDP has three chemical pulp projects (total capacity reaching 2mnt) that have not yet started operations. These production lines, located in Tianjin, Chongqing, and Guangxi, are scheduled to start operation over 4Q26–1Q27. We think the firm’s production lines in Tianjin and Chongqing will mainly produce traditional linerboard and corrugated board. This may increase the proportion of naturalcolored pulp fibers in its output and thus help enhance the firm’s profitability in the traditional black paper market.
The firm guides capex of around Rmb11bn for FY26 (vs. Rmb17.7bn in FY23, Rmb12.8bn in FY24, and Rmb14.8bn in FY25). Given that this round of capex will likely conclude in FY26, we expect the firm’s financial statements to improve as its profit and cash flow recover.
Financials and valuation
As the firm’s per-tonne profit from and output of self-produced pulp exceeded our and market expectations, we raise our FY26–27 net profit forecasts 32% and 39% to Rmb3.6bn and Rmb4bn. The stock is trading at 0.6x FY26e and 0.5x FY27e P/B. We maintain an OUTPERFORM rating and raise our TP 29% to HK$9, implying 0.7x FY26e and 0.6x FY27e P/B and offering 21% upside.
Risks
Disappointing demand; sharper-than-expected pulp price volatility; higher-than-expected capex; elevated gearing ratio.