纸价反弹 玖龙纸业 (2689:HK) BUY Unchanged

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1 SWS Co. Ltd is a subsidiary of ShenwanHongyuan Securities. 99 East Nanjing Road, Shanghai Materials Company Bringing China to the World 11 May, 2017 BUY Unchanged Market Data: May 10 Closing Price (HK$) 9,15 Price Target (HK$) 12.0 HSCEI HSCCI week High/Low (HK$) 8.35/4.77 Market Cap (USD Mn) 4878 Market Cap (HK$ Mn) Shares Outstanding (Mn) 4,666 Exchange Rate (RMB-HK$) 1.22 Price Performance Chart: Source: Bloomberg Analyst Vincent Yu A BAM599 (+86) yuwj@swsresearch.com Contact Hunter Du A (+86) Duhm@swsresearch.com The company does not hold any equities or derivatives of the listed company mentioned in this report ( target ), but then we shall provide financial advisory services subject to the relevant laws and regulations. Any affiliates of the company may hold equities of the target, which may exceed 1 percent of issued shares subject to the relevant laws and regulations. The company may also provide investment banking services to the target. The Company fulfills its duty of disclosure within its sphere of knowledge. The clients may contact compliance@swsresearch.com for relevant disclosure materials or log into under disclosure column for further information. The clients shall have a comprehensive understanding of the disclosure and disclaimer upon the last page. 纸价反弹 玖龙纸业 (2689:HK) Financial summary and valuation E 2018E 2019E Revenue (Rmbm) 30,093 32,093 38,860 41,748 44,730 YoY (%) Net income (Rmbm) 1,412 1,122 4,427 5,056 5,636 YoY (%) (19.6) (20.5) EPS (Rmb) Diluted EPS (Rmb) ROE (%) 5.6% 4.3% 15.2% 15.6% 17.4% Debt/asset (%) Dividend yield (%) PE (x) PB (x) EV/Ebitda (x) Note: Diluted EPS is calculated as if all outstanding convertible securities, such as convertible preferred shares, convertible debentures, stock options and warrants, were exercised.. 箱板纸价格底部反弹 17 年一季度箱板纸和国内废纸价格急剧上涨下跌, 导致玖龙纸业 的股价在三月和四月大幅度修正约 30% 我们的观点是, 箱板纸产业的长期供给和需求 处于正轨, 投资人过于担心玖龙的销售价格 根据我们的渠道跟踪, 箱板纸价格在四月 份趋于稳定, 并且开始再次上涨 包括玖龙纸业在内, 超过 100 家一线二线的造纸厂提 价 元 / 吨 基于纸业联讯的新闻信息, 我们发现浙江的一些小型厂商从四月至五 月已经提价 20% 停产和废纸价格上涨支撑纸价我们看好这一轮的价格走势将会持续下去 主要由于以下两个原因 首先, 在浙江将会有 89 家二线的造纸厂停产检修十天 除此以外, 四家在东莞的主要生产线也将在五月停产 由于 一带一路 国际合作高峰论坛将于这周在北京举行, 为了确保良好的环境, 京津冀地区的造纸厂将停产 10 到 15 天 其次, 国废价格和美废价格已经开始上涨, 美废在岸价格已回到高点为 美元 / 吨 这将会造成箱板纸价格的上升形成支撑 长期的供需关系改善三月的箱板纸价格修正并没有改变长期的供给和需求的上升趋势 我们反复提到, 玖龙纸业将会持续改进, 以适应政府日益强化的淘汰落后产能, 提高新增建设门槛的规制 我们预计在暂时的检修过后, 由于需求会从 6 月开始进入高峰期 ( 通常从 6 月到 12 月 ), 箱板纸会有下一轮的价格走势 经验上来看, 短期内供给的收缩将会导致一波强势的价格走势 下调目标价格, 重申买入评级由于造纸产业结构不断改善, 我们维持对于玖龙纸业的长期看涨预期 我们上调 17 年的盈利预测从 0.85 元至 0.95 元, 同比增长 295%,18 年的 1.07 元至 1.08 元, 同比增长 14%, 同时, 我们的目标价从 13 港元下调至 12 港元, 对应 1.5 倍的 17 年市净率 基于 31% 的上行空间, 我们维持买入评级

2 Building Food, Materials Materials Beverage Company & Company Tobacco Company Containerboard and old corrugated container (OCC) prices quickly rose and fell in 1Q17, resulting in a stock price correction of almost 30% in March and April for Nine Dragons Paper. In our view, the containerboard industry benefits from solid fundaments and average selling price (ASP) concerns are overdone. According to our channel check, containerboard prices stabilised in April and started to rise again, with over 100 first- and second-tier paper mills increasing prices by Rmb50-200/t, including Nine Dragons Paper. We revise up our EPS forecasts from Rmb0.85 to Rmb0.95 in FY17E (+296% YoY), from Rmb1.07 to Rmb1.08 in FY18E (+14% YoY) and from Rmb1.06 to Rmb1.19 in FY19E (+10% YoY). However, we lower our target price to HK$12, maintain our BUY recommendation. Supported ASP increases. Based on RISI news, some small mills in Zhejiang Province posted increases reaching 20% from April to May. We are positive that this round of price hikes will persist because of two major reasons. Firstly, 89 second-tier mills in Zhejiang have ceased production for c.10 days due to maintenance. In addition, four major production lines of Nine Dragons Paper s Dongguan base also ceased production in May. Due to One Belt, One Road meeting to be held in Beijing this week, paper mills in the Hebei-Tianjin- Beijing region will cease production for days to ensure favourable environmental conditions. Secondly, both domestic and US OCC prices have increased, with US OCC onshore prices reaching a high level of US$ /t and supporting containerboard prices. Favorable market. Although containerboard prices corrected in March, our long-term view for the supply-demand dynamics of the industry remain positive. Notably, Nine Dragons Paper is likely to record continued improvements in orders as the government introduces more stringent environmental regulations to accelerate the elimination of outdated capacity as well as limit new capacity build-out. We project containerboard prices to post another round of price hikes after the end of the current temporary capacity maintenance period as demand gradually pick ups as the peak season arrives (usually June to December). Due to the current short-term supply shortage, we also expect strong price hikes in the near term. Maintain BUY. As the structure of the paper industry continues to improve, we remain bullish on Nine Dragons Paper long-term outlook. We thus revise up our EPS forecasts from Rmb0.85 to Rmb0.95 in FY17E (+296% YoY), from Rmb1.07 to Rmb1.08 in FY18E (+14% YoY) and from Rmb1.06 to Rmb1.19 in FY19E (+10% YoY). We lower our target price from HK$13 to HK$12, representing 1.5x FY17E PB. With 31% upside, we maintain our BUY rating on the company. Please refer to the last page for important disclosures Page 1

3 Building Food, Materials Materials Beverage Company & Company Tobacco Company Summary Containerboard price bottom out. Containerboard price and domestic OCC price has rapidly rise and fall in 1Q17, results NDP stock price largely correction almost 30% in March and April. In our view containerboard industry long-term S/D is on the right track and investors are over concern about ASP. According to our channel track, containerboard price has stabilized in April and start to rise again, more than 100 tier 1-2 paper mills has increased price for 200/t, including NDP. Based on RISI news, we found some small mills in Zhejiang has increased 20% from April to May. Fig 1: NDP s Containerboard paper price from in Southern China Rmb/t 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 Source: Wind, SWS Fig 2: NDP s national wide corrugated paper price from Rmb/t 5,000 4,500 4,000 3,500 3,000 2,500 2,000 Source: Wind, SWS Production cease and OCC rise as the backup for ASP. We positive on this round price hike will persist because of two major reasons. First, there were 89 tier two mills in Zhejiang cease production for maintenance about 10 days in Zhejiang. In additions, four major capacities of NDP also cease production in May. Due to One Belt and One road meeting host in Beijing this week, Hebei-Tianjin-Beijing region paper mills will cease production for days to ensure environment.. The other reason is both domestic OCC price and US OCC price has rising, and US OCC onshore price has back to high level around US$ /t, supporting current containerboard price. Please refer to the last page for important disclosures Page 2

4 Building Food, Materials Materials Beverage Company & Company Tobacco Company Fig 3: National wide price hikes in April and May Time Region Paper Bases Price Adjustment(RMB/t) 25/4/2017 Shananxi Shenglong Paper /4/2017 Shandong Yuantong Paper /4/2017 Ningxia Yinchuan Zhongshenghuatong Paper 100 1/5/2017 Guangdong NDP's Dongguan Base 50 2/5/2017 Tianjin Nine Dragon Paper 50 3/5/2017 Sichuan Xinjin Chenlong Paper 100 5/5/2017 Sichuan Xunyuan Paper 100 5/5/2017 Henan Xinxiang Hongda Paper 100 5/5/2017 Zhejiang Hangzhou Fuyang Wansheng Paper 200 8/5/2017 Shandong Luli Paper 100 Source: Risi, SWS Fig 4: Paper mills cease production in May Time Region Paper bases Capacity maintenance period 25/4/2017 Zhejiang Total 89 paper mills in Fuyang 5-10 days each mill 10/5/2017 Tianjin-Beijing- Hebei 8/5/2017 Guangdong NDP's Dongguan base Source: Risi, SWS All mills cease production for One Belt One Road days days for each production line Fig 5: Domestic OCC price VS. US OCC price in Rmb/t 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1,000 USD/t Domestic OCC US OCC Source: Wind, SWS Please refer to the last page for important disclosures Page 3

5 Building Food, Materials Materials Beverage Company & Company Tobacco Company Long term S/D improving. Containerboard price correction in March has unchanged the long term S/D dynamics upward trend. We mentioned Nine Dragons Paper stands to record continued improvement in orders as the government introduces more stringent environmental regulations to speed up elimination of obsolete capacities and mandates tougher approvals for new capacity build-out. We estimate containerboard price will have another round price hike after end of temporary capacity maintenance as demand gradually pick up into peak season( usually June to December) started at June. For experience, supply shrink in short term will result strong price hike Fig 6 Paper packaging utilization rate improve in 16E-18E 95% 90% 85% 80% 75% 70% 65% E 2017E 2018E Paper packaging utilization rate Source: Wind, SWS Fig 7: Paper packaging concentration rate 40% 35% 30% 25% 20% 15% 10% 5% 0% Total CR3 NDP LMP Shanyin Source: RISI, Wind, SWS Lower TP, reiterate BUY. As the structure of the paper industry continues to improve, we remain bullish on Nine Dragons long-term outlook. We revise up our EPS forecasts from Rmb0.85to Rmb0.95 in FY17E (+295% YoY), from Rmb1.07 to Rmb 1.08 in FY18E (+14% YoY) and from Rmb1.06 to Rmb1.19 in FY19E (+12% YoY). We lower our target price from HK$13 to HK$12, representing 1.5x FY17E PB. With 31% upside, we maintain our BUY rating on the company. Please refer to the last page for important disclosures Page 4

6 Jul/08 Nov/08 Mar/09 Jul/09 Nov/09 Mar/10 Jul/10 Nov/10 Mar/11 Jul/11 Nov/11 Mar/12 Jul/12 Nov/12 Mar/13 Jul/13 Nov/13 Mar/14 Jul/14 Nov/14 Mar/15 Jul/15 Nov/15 Mar/16 Jul/16 Nov/16 Mar/17 HK$ October January 11 May, 12,2015 Building Food, Materials Materials Beverage Company & Company Tobacco Company Fig 8: Nine Dragons Paper leading PB bands P&L New Old Change Year to June, Rmb M FY17E FY18E FY17E FY18E FY17E FY18E Unit gross profit % 3.1% Unit net dollar margin % 4.3% Net profit 4,427 5,056 3,982 4, % 1.5% EPS (Rmb) % 1.5% Source: Bloomberg, SWS Fig 9: Nine Dragons Paper leading PB bands 2689HK Forward PB band HK Equity PB 0.6x PB 0.8x PB 1.0x PB 1.2x Source: Bloomberg, SWS Please refer to the last page for important disclosures Page 5

7 Building Food, Materials Materials Beverage Company & Company Tobacco Company Consolidated Income Statement (Rmbm) E 2018E 2019E Revenue 30,093 32,093 38,860 41,748 44,730 Cost of Sales 25,376 26,231 30,418 32,234 34,293 Gross Profit 4,716 5,861 8,442 9,514 10,437 Other Income Distribution expenses Administrative expenses 918 1,048 1,072 1,207 1,267 SG&A 1,597 1,784 1,822 2,002 2,102 EBITDA 5,079 6,137 8,707 9,657 10,509 EBIT 3,240 4,331 6,888 7,824 8,663 Finance Costs 1,324 1, Profit before tax 1,955 1,667 6,043 6,901 7,694 Income tax expense ,571 1,794 2,000 Minority interests Profit for the year 1,412 1,122 4,427 5,056 5,636 Source: Company, SWS Consolidated Cash Flow Statement (Rmbm) E 2018E 2019E Profit before taxation 1,955 1,667 6,043 6,901 7,694 Plus:Depr. and amortisation 1,838 1,806 1,819 1,833 1,846 Finance cost 1,455 1, ,003 Losses from investments Change in working capital 2,059 1,332 (3,838) (373) (2,679) Others (1,477) (2,067) (2,474) (2,781) (2,000) CF from operating activities 5,606 4,149 2,424 6,534 5,863 - CAPEX -1,715-2,049-2,049-2,031 2,032 Other CF from investing activities (19) 1 (32) CF from investing activities (1,557) (2,165) (3,520) (2,204) (2,237) Equity financing Net change in liabilities (3,583.9) 1, , , ,213.5 Dividend and interest paid (408) (607) (371) (1,465) (1,673) Other CF from financing activities CF from financing activities (3,990) 855 2,858 2,020 2,102 Net cash flow 59 2,838 1,762 6,351 5,729 FCFF 4,299 2,867 3,010 3,160 3,318 Source:Company, SWS Please refer to the last page for important disclosures Page 6

8 Building Food, Materials Materials Beverage Company & Company Tobacco Company Consolidated Balance Sheet (Rmbm) E 2018E 2019E Current Assets 18,228 20,535 27,495 34,786 43,770 Bank balances and cash 7,311 11,002 12,560 18,910 24,639 Trade and other receivables 5,351 4,598 6,575 7,064 7,568 Inventories 3,553 3,606 6,076 6,528 6,994 Long-term investment PP&E 45,011 44,861 47,150 47,312 47,460 Intangible and other assets 1,788 1,833 1,866 1,906 1,983 Total Assets 65,034 67,292 76,511 84,004 93,213 Current Liabilities 17,759 20,461 23,521 25,732 28,116 Borrowings 12,188 14,943 16,437 18,081 19,889 Trade and other payables 3,964 5,349 6,477 6,958 7,455 Other current liabilities 1, Long-term liabilities 21,749 27,818 29,520 31,365 33,372 Total Liabilities 39,508 48,279 53,041 57,097 61,488 Minority Interests Shareholder Equity 25,227 26,074 29,036 32,418 32,418 Share Capital 9,209 9,209 9,209 9,209 9,209 Reserves 16,018 16,866 19,828 23,210 23,210 Total Liabilities and equity 65,034 67,292 76,511 84,004 93,213 Source: Company, SWS Please refer to the last page for important disclosures Page 7

9 Building Food, Materials Materials Beverage Company & Company Tobacco Company Key Financial Ratios (Rmbm) E 2018E 2019E Ratios per share (yuan) Earnings per share Diluted earnings pers share Operating CF per share Dividend per share Net assets per share Key Operating Ratios(%) ROIC 4.1% 5.4% 7.9% 9.5% 10.9% ROE 5.6% 4.3% 15.2% 15.6% 17.4% Gross profit margin EBITDA Margin EBIT Margin Growth rate of Revenue(YoY) Growth rate of Profit(YoY) (0.7) Debt-to-asset ratio Turnover rate of net assets Turnover rate of total assets Effective tax rate (%) Dividend yield (%) Valuation Ratios (X) P/E P/B EV/Sales EV/EBITDA Source:Company, SWS Please refer to the last page for important disclosures Page 8

10 Building Food, Materials Materials Beverage Company & Company Tobacco Company Information Disclosure: The views expressed in this report accurately reflect the personal views of the analyst. The analyst declares that neither he/she nor his/her associate serves as an officer of nor has any financial interests in relation to the listed corporation reviewed by the analyst. None of the listed corporations reviewed or any third party has provided or agreed to provide any compensation or other benefits in connection with this report to any of the analyst, the Company or the group company(ies). A group company(ies) of the Company confirm that they, whether individually or as a group (i) are not involved in any market making activities for any of the listed corporation reviewed; or (ii) do not have any individual employed by or associated with any group company(ies) of the Company serving as an officer of any of the listed corporation reviewed; or (iii) do not have any financial interest in relation to the listed corporation reviewed or (iv) do not, presently or within the last 12 months, have any investment banking relationship with the listed corporation reviewed. Undertakings of the Analyst I (We) am (are) conferred the Professional Quality of Securities Investment Consulting Industry by the Securities Association of China and have registered as the Securities Analyst. I hereby issue this report independently and objectively with due diligence, professional and prudent research methods and only legitimate information is used in this report. I am also responsible for the content and opinions of this report. I have never been, am not, and will not be compensated directly or indirectly in any form for the specific recommendations or opinions herein. Disclosure with respect to the Company The company is a subsidiary of ShenwanHongyuan Securities. The company is a qualified securities investment consulting institute approved by China Securities Regulatory Commission with the code number ZX0065. Releasing securities research reports is the basic form of the securities investment consulting services. The company may analyze the values or market trends of securities and related products or other relevant affecting factors, provide investment analysis advice on securities valuation/ investment rating, etc. by issuing securities research reports solely to its clients. The Company fulfills its duty of disclosure within its sphere of knowledge. The clients may contact compliance@swsresearch.com for the relevant disclosure materials or log into for the analysts' qualifications,the arrangement of the quiet period and the affiliates shareholdings. Introduction of Share Investment Rating Security Investment Rating: When measuring the difference between the markup of the security and that of the market s benchmark within six months after the release of this report, we define the terms as follows: Trading BUY: Share price performance is expected to generate more than 20% upside over a 6-month period. BUY: Share price performance is expected to generate more than 20% upside over a 12-month period. Outperform: Share price performance is expected to generate between 10-20% upside over a 12-month period. Hold: Share price performance is expected to generate between 10% downside to 10% upside over a 12-month period. Underperform: Share price performance is expected to generate between 10-20% downside over a 12-month period. SELL: Share price performance is expected to generate more than 20% downside over a 12-month period. Industry Investment Rating: When measuring the difference between the markup of the industry index and that of the market s benchmark within six months after the release of the report, we define the terms as follows: Overweight:Industry performs better than that of the whole market; Equal weight: Industry performs about the same as that of the whole market; Underweight:Industry performs worse than that of the whole market. We would like to remind you that different security research institutions adopt different rating terminologies and rating standards. We adopt the relative rating method to recommend the relative weightings of investment. The clients decisions to buy or sell securities shall be based on their actual situation, such as their portfolio structures and other necessary factors. The clients shall read through the whole report so as to obtain the complete opinions and information and shall not rely solely on the investment ratings to reach a conclusion. The Company employs its own industry classification system. The industry classification is available at our sales personnel if you are interested. HSCEI is the benchmark employed in this report. Disclaimer: This report is to be used solely by the clients of SWS Co., Ltd. ( subsidiary of ShenwanHongyuan Securities, hereinafter referred to as the Company ). The Company will not deem any other person as its client notwithstanding his receipt of this report. This report is based on public information, however, the authenticity, accuracy or completeness of such information is not warranted by the Company. The materials, tools, opinions and speculations contained herein are for the clients reference only, and are not to be regarded or deemed as an invitation for the sale or purchase of any security or other investment instruments. The clients understand that the text message reminder and telephone recommendation are no more than a brief communication of the research opinions, which are subject to the complete report released on the Company s website ( The clients may ask for follow-up explanations if they so wish. The materials, opinions and estimates contained herein only reflect the judgment of the Company on the day this report is released. The prices, values and investment returns of the securities or investment instruments referred to herein may fluctuate. At different periods, the Company may release reports which are inconsistent with the materials, opinions and estimates contained herein. Save and except as otherwise stipulated in this report, the contactor upon the first page of the report only acts as the liaison who shall not provide any consulting services. The clients shall consider the Company s possible conflict of interests which may affect the objectivity of this report, and shall not base their investment decisions solely on this report. The clients should make investment decisions independently and solely at your own risk. Please be reminded that in any event, the company will not share gains or losses of any securities investment with the clients. Whether written or oral, any commitment to share gains or losses of securities investment is invalid. The investment and services referred to herein may not be suitable for certain clients and shall not constitute personal advice for individual clients. The Company does not ensure that this report fully takes into consideration of the particular investment objectives, financial situations or needs of individual clients. The Company strongly suggests the clients to consider themselves whether the opinions or suggestions herein are suitable for the clients particular situations; and to consult an independent investment consultant if necessary. Under no circumstances shall the information contained herein or the opinions expressed herein forms an investment recommendation to anyone. Under no circumstances shall the Company be held responsible for any loss caused by the use of any contents herein by anyone. Please be particularly cautious to the risks and exposures of the market via investment. Independent investment consultant should be consulted before any investment decision is rendered based on this report or at any request of explanation for this report where the receiver of this report is not a client of the Company. Please refer to the last page for important disclosures Page 9

11 Building Food, Materials Materials Beverage Company & Company Tobacco Company The Company possesses all copyrights of this report which shall be treated as non-public information. The Company reserves all rights related to this report. Unless otherwise indicated in writing, all the copyrights of all the materials herein belong to the Company. In the absence of any prior authorization by the Company in writing, no part of this report shall be copied, photocopied, replicated or redistributed to any other person in any form by any means, or be used in any other ways which will infringe upon the copyrights of the Company. All the trademarks, service marks and marks used herein are trademarks, service marks or marks of the Company, and no one shall have the right to use them at any circumstances without the prior consent of the Company. This report may be translated into different languages. The Company does not warrant that the translations are free from errors or discrepancies. This report is for distribution in Hong Kong only to persons who fall within the definition of professional investors whether under the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong) (the SFO ) or the Securities and Futures (Professional Investor) Rules (Chapter 571D of the laws of the Hong Kong under the SFO). This report is for distribution in the United Kingdom only to persons who (i) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) order 2001 (as amended) (the Order ) or (ii) are persons falling within Article 49(2)(a) to (d) ( High Net Worth Companies, Unincorporated Associations, etc ) of the Order (All such persons together being referred to as Relevant Persons ). This document is directed only at Relevant Persons. Other Persons who are not Relevant Persons must not act or rely upon this document or any of its contents. Distribution in Singapore If distributed in Singapore, this report is meant only for Accredited Investors and Institutional Investors as defined under Section 4A of the Securities and Futures Act of Singapore. If you are not an Accredited Investor or an Institutional Investor, you shall ignore the report and its contents. The Singapore recipients of the report are to contact the Singapore office of Shenwan Hongyuan Singapore Private Limited at , or in respect of any matters arising from, or in connection with, the report. Please refer to the last page for important disclosures Page 10