CICC has released a research report stating that ND PAPER's FY26 results were in line with its earlier profit alert and the firm's expectations.

Taking into account the company's redemption of perpetual bonds, which has led to elevated debt levels and financial expenses, CICC has lowered its FY27 net profit forecast by 5% to RMB 4.26 billion and introduced an FY28 net profit forecast of RMB 4.455 billion; considering the earnings forecast adjustment and the increase in leverage, CICC has cut its target price by 17% to HK$10, corresponding to an FY27-28 P/B of 0.7x, implying 65% upside.

The main views from CICC are as follows:

FY26 Results In Line with Earlier Profit Alert and Firm's Expectations

The company announced its FY26 results: revenue rose 19% year-on-year to RMB 75 billion, and net profit attributable to shareholders surged 102.6% year-on-year to RMB 3.58 billion, in line with the earlier profit alert and CICC's expectations; in particular, net profit attributable to shareholders in the second half of FY26 fell 18% quarter-on-quarter to RMB 1.61 billion, mainly due to non-operating impairment of US assets. Excluding non-operating impairment, FY26 net profit attributable to shareholders was approximately RMB 4 billion. On an operating level, FY26 sales volume reached 24.5 million tonnes, up 14% year-on-year; ASP was approximately RMB 3,060 per tonne, up 4% year-on-year; CICC estimates net profit per tonne at approximately RMB 146 per tonne, up 78% year-on-year.

FY27 Capex Guidance Remains Elevated, Multiple New Projects Deepen Pulp-Paper Integration and Product Mix Upgrading

The company has announced FY27 capex guidance of approximately RMB 11 billion, mainly due to several new pulp and paper projects: 1) the relocation of the original 600,000-tonne containerboard production line in Dongguan to Beihai and its upgrade to 700,000 tonnes, which the company expects to complete in the second quarter of FY27; 2) an additional 620,000 tonnes of containerboard in Dongguan, which the company expects to complete in the fourth quarter of FY27; 3) an additional 600,000-tonne wood pulp production line in Taicang, which the company expects to complete in the second quarter of FY28. In addition, at its FY26 public earnings call, the company stated plans to add tissue paper production lines at certain bases to absorb self-produced wood pulp and broaden profit sources. According to the company's estimates, as of the end of June 2028, papermaking capacity is expected to reach 26.09 million tonnes, and wood pulp and recycled pulp capacity is expected to reach 9.22 million tonnes, with major bases essentially completing wood pulp integration and the proportion of high-end products expected to continue rising.

Company Declares First Dividend Since FY23

The board has proposed a final dividend of RMB 0.1 per share for FY26, which CICC estimates implies a payout ratio of approximately 13%; including perpetual bond coupon payments, the total FY26 payout ratio is approximately 21%.

Bullish on Packaging Paper Price Recovery During Traditional Peak Season

CICC has observed that packaging paper mills recently issued concentrated price increase notices, covering categories such as containerboard, corrugated paper, and white card paper. Given that the domestic "Golden September and Silver October" traditional peak season is currently underway, CICC is bullish on packaging paper price recovery, which would drive the company's profit improvement.

Earnings Forecast and Valuation

Taking into account the company's redemption of perpetual bonds, which has led to elevated debt levels and financial expenses, CICC has lowered its FY27 net profit forecast by 5% to RMB 4.26 billion and introduced an FY28 net profit forecast of RMB 4.455 billion. The current share price corresponds to an FY27-28 P/B of 0.4x. Considering the earnings forecast adjustment and the increase in leverage, CICC has cut its target price by 17% to HK$10, corresponding to an FY27-28 P/B of 0.7x, implying 65% upside.

Risks

Demand falling short of expectations; significant fluctuations in pulp prices; capex exceeding expectations.