Zheshang Securities has issued a research report reiterating its "Buy" rating for ND PAPER (ASX: 02689). The report factors in the financial cost savings from the company's perpetual bond repurchase and the improving industry conditions for containerboard and corrugating medium. It forecasts the company's revenue for FY2026-FY2028 to be 72.7/74.0/74.8 billion yuan, representing increases of 15%, 2%, and 1% respectively. Net profit attributable to shareholders is projected at 3.5/4.3/5.0 billion yuan, with growth rates of 99%, 23%, and 15%. The key points from Zheshang Securities are as follows:

Company Initiates $400 Million Perpetual Bond Repurchase Offer

The company announced an offer to repurchase all outstanding $400 million, 14.00% coupon perpetual capital securities in cash. This repurchase aims to optimize the capital structure and enhance profitability. The funding will come from a 20 billion yuan, three-year syndicated loan approved in June 2026 and the company's own capital.

Repurchase Boosts Earnings and Refines Capital Structure

This repurchase offer is expected to significantly improve the company's financial position, directly boosting profits and demonstrating management's confidence. It will lead to substantial savings in financial expenses: the perpetual bond carries a high 14.00% coupon rate, while the new syndicated loan is expected to have a lower interest rate in the current environment. In FY2025, this perpetual bond incurred expenses of approximately 400 million yuan; full redemption is expected to notably reduce the company's interest expenses. Management's confidence is evident: the controlling shareholder family holds about 81% of the outstanding principal and has committed to tender it at the general repurchase price after the early bird period, voluntarily forgoing a 7% premium, saving the company about $22.68 million in premium interest, aligning interests and showing confidence in future development. The capital structure will be optimized: upon completion, the securities will be canceled, aiding in refining the company's capital structure.

Pulp-Based Paper Segment Bottoming, Containerboard and Corrugating Medium Entering Upcycle, Leader's Leverage Highlighted

For woodfree printing paper and coated ivory board: current prices are at historical lows. As of June 5th, woodfree paper price was 4,600 yuan/ton, at the 0th historical percentile, and coated ivory board price was 4,018 yuan/ton, at the 3rd percentile. Recent price increases have followed containerboard, with overall profitability for pulp-based paper at a historical low (theoretical gross margins for woodfree/coated ivory board were -10%/-9% as of June 5th). With pulp prices falling and limited room for further paper price declines, the cycle bottom for the pulp-based segment is further solidified. For containerboard and corrugating medium: recent factors like rainfall affecting waste paper collection, rising imported waste paper prices, and export order releases have pushed up waste paper prices, driving paper prices higher even during the off-season. The tracked prices for containerboard/corrugating medium are 3,700/2,981 yuan/ton, at the 31st/44th historical percentiles, with price hikes being implemented quickly. Given ND PAPER's production scale, the profit leverage from these price increases is significant.

Pulp and Paper Integration Builds Cost Advantage, Capital Expenditure Peak Passed

The company continues to advance its pulp and paper integration strategy, deepening its cost moat, while the peak in capital expenditures has passed, with future profit leverage expected to be released. As of H1 FY2026, the company's annual designed wood pulp production capacity in operation is about 6.1 million tons, with a further 2.5 million tons of pulp capacity planned for commissioning from late 2026 to 2027. Upon completion of all projects, the total annual designed fiber raw material capacity is expected to reach approximately 10.7 million tons, with a high self-sufficiency rate continuously optimizing production costs. The company currently has no plans for new papermaking capacity; future investments will focus on upstream pulp. Capital expenditures have passed their peak and are expected to decline marginally, improving the company's cash flow.

Risk Factors

Risks include raw material price fluctuations, intensifying market competition, and weaker-than-expected downstream demand.