CICC released a research report stating that, considering ND PAPER's (02689) self-produced pulp output and profit per ton exceeded expectations, it has raised its FY26-27e net profit forecasts by 32% and 39% to RMB 3.6 billion and RMB 4.0 billion, respectively, corresponding to FY26-27 P/B ratios of 0.6x and 0.5x. The firm maintains its Outperform industry rating and has increased the target price by 29% to HK$9. This target price corresponds to FY26-27 P/B ratios of 0.7x and 0.6x, implying a 21% upside potential.
CICC's main views are as follows.
The 1HFY26 net profit attributable to shareholders exceeded the firm's and market expectations. The company announced its 1HFY26 performance forecast: it achieved a profit of RMB 2.15-2.25 billion. After deducting perpetual bond interest, the performance was RMB 1.95-2.05 billion, a year-on-year increase of 315%-337%. The performance surpassed both the firm's and market expectations. Overall, the firm estimates the company's sales volume was approximately 12 million tons, with a net profit per ton of paper of around RMB 160. The core reason for the outperformance lies in the cost and output of self-produced pulp.
Black Paper: Containerboard and corrugated paper are steadily recovering. In the second half of 2025, driven by rising waste paper prices and the industry entering the traditional peak season, containerboard and corrugated paper prices increased significantly. The firm judges that profit per ton of paper is steadily recovering and estimates the net profit per ton to be around RMB 100. Looking ahead, the firm believes that industry supply will largely conclude in 2026, with only Sun Paper's 600,000-ton capacity in 4Q26 being relatively certain (accounting for less than 1% of industry sales volume), while demand is expected to grow steadily. The firm is optimistic that the sector cycle is bottoming out, paving the way for a subsequent recovery in supply and demand dynamics. As the largest containerboard and corrugated paper leader in China (with a market share of around 25%), ND PAPER's performance shows significant elasticity benefiting from the sector's recovery.
White Paper: Self-produced pulp output and net profit per ton may exceed expectations. The company disclosed an FY25 pulp production of 3 million tons. Considering the ramp-up of new pulp lines, the firm estimates 1HFY26 pulp production exceeded 2 million tons, which is the core incremental factor for this earnings beat. From a product breakdown perspective, and given the company's self-sufficiency rate for self-produced pulp is close to 100%, the firm believes ND PAPER's excess profit compared to peers is further widening. The firm estimates the average net profit per ton for white paper (i.e., cultural paper, white cardboard, accounted for within pulp) to be above RMB 300.
The firm is optimistic about the company's FY26 financial quality beginning to recover. According to the company's announcement, it currently has only three remaining chemical pulp lines totaling 2 million tons scheduled for commissioning in 4Q26-1Q27, located in Tianjin, Chongqing, and Beihai, Guangxi, respectively. The firm believes the Tianjin and Chongqing bases primarily focus on traditional containerboard and corrugated paper. This move by the company may aim to optimize its containerboard structure by increasing brown pulp fiber, thereby amplifying the profit advantage of its traditional black paper segment. Furthermore, the company guides for FY26 capital expenditure of around RMB 11 billion (compared to RMB 17.7 billion, RMB 12.8 billion, and RMB 14.8 billion in FY23-25, respectively), indicating it is in the final year of this capital expenditure cycle. With improvements in company profits and cash flow, the firm is optimistic that ND PAPER's FY26 financial report quality will mark a starting point for recovery.
Risk warnings: Demand falling short of expectations; significant volatility in pulp prices; capital expenditure exceeding expectations; excessively high debt ratio.