Nine Dragons Paper Net Profit Up 70%, Industry Concentration Set to Rise Further

Since August this year, many paper companies have issued price increase notices repeatedly, with corrugated paper prices performing particularly strikingly. Encouraged by the price increase news, the paper sector as a whole performed better than other sectors. Nine Dragons Paper (02689), a Hong Kong-listed domestic paper leader, released its fiscal year results on Monday, with net profit up 70% year on year. The company said that, given strong demand, it is carrying out construction on multiple projects and continuing to expand capacity.

By capacity, the company is the world's second-largest paper group. The annual report shows that in the fiscal year ended June 30, 2021, the company achieved revenue of about RMB 61.574 billion, up 19.93% year on year. Profit attributable to shareholders was RMB 7.101 billion, up 70.35% year on year. Earnings per share were RMB 1.51. A final dividend of RMB 0.33 per share was proposed.

According to the announcement, the group's sales revenue comes mainly from the packaging paper business (including carton board, high-strength corrugated paper and coated grey-backed white board), accounting for about 91.5% of sales revenue, with the remaining about 8.5% coming from culture paper, high-value specialty paper and pulp products. At the same time, the group's sales revenue in FY2021 increased 19.9%, mainly because product sales volume increased about 7.8% year on year and selling prices rose about 14.4%.

The company's gross profit margin also rose slightly, from 17.6% in FY2020 to 19% in FY2021, mainly because the rate of price increases far exceeded raw material cost increases.

Although Nine Dragons Paper achieved such a high profit growth rate, the dividend from soaring paper prices was still not fully enjoyed in the past fiscal year, because since August domestic paper prices have met another wave of increases. According to industry insiders, since August corrugated paper prices have risen one after another and now remain between 3,850 and 4,000 yuan. The sharp rise in domestic waste paper raw material prices this year is one of the main factors driving corrugated paper prices up.

They also said that about 15 to 20 million tonnes of foreign waste paper enters the country each year, but after the state fully implemented the policy of prohibiting the import of solid waste, many paper companies were forced to stop waste paper imports, which has made domestic waste paper and pulp supply tighter.

In addition, Nine Dragons Paper said it is carrying out construction on multiple papermaking projects, and expects its annual papermaking capacity to reach 23.82 million tonnes by the end of June 2024, an increase of 6.25 million tonnes, to meet the huge demand foreseeable in the future. At the same time, the company is also expanding pulp projects in China and Malaysia, totalling 3.72 million tonnes, which will be completed successively over the next two years.

The company pointed out that the global pandemic is still evolving and the external environment is complex and severe. Looking ahead to the coming year, with further vaccine roll-out, the global pandemic is expected to stabilise and the global economy to get back on track. Under the new domestic dual circulation development pattern, China's domestic demand and export industry will be revitalised. In the medium and long term, replacing plastic with paper and consumption upgrading will drive demand for high-end packaging paper such as white card and high-end kraft linerboard; and tight raw materials and tightening environmental policies will favour rising industry concentration.

——This article is reprinted from China Packaging Network (pack.cn). Original link: http://news.pack.cn/show-378337.html