According to a research report from Morgan Stanley, ND Paper (02689) has been assigned an "In-Line" rating with a target price of HK$7.7.

The company will focus primarily on deleveraging over the next few years as capital expenditure requirements decline.

Domestic packaging paper capacity expansion will be put on hold, with current expansion efforts concentrated mainly on pulp and fiber capacity.

Management guidance indicates that total capital expenditure for the fiscal year ending June next year (FY2027) will be RMB 11 billion, dropping to RMB 6 billion in FY2028.

Lower capital expenditure needs will free up more funds for debt repayment.

Management expects the company's net debt ratio to fall from 67% in FY2026 to approximately 50% in FY2027, with a long-term goal of reducing the total debt ratio to around 30%.

The bank notes that increasing the self-sufficiency rate of pulp capacity will help improve packaging paper margins. The company mentioned that self-supplied pulp can add approximately RMB 100 per ton in profit to packaging paper products.

Pulp usage per ton of packaging paper is less than 20%, and capital expenditure per ton for its pulp production lines is approximately RMB 5,000.

Additional pulp output will be used for tissue paper production, but the volume will be modest, expected to total less than 1 million tons.

The bank also notes that with the commissioning of pulp production lines, depreciation and amortization are expected to rise to approximately RMB 4.8 billion in FY2027, implying depreciation and amortization of RMB 200 per ton in FY2027, compared with RMB 185 per ton in FY2026.