理文造纸(2314.HK):给予“买入”评级,目标价10.1港元

  机构:银河证券

  评级:买入

  目标价:10.1港元 

  Investment Highlights  

  More discipline in capacity expansion. Regarding capacity expansion, Nine Dragons Paper has: a) delayed commercial production of a number of its new paper machines, b) removed the phase III expansion of the Quanzhou plant from the latest construction list, and c) set up no new paper production lines. The delay is to avoid over-investment, given tight raw material supply and increasing environmental protection controls. This is line with our view that the increase in capacity of the industry will be lower than some investors expect, given capacity closure and constraints on new supply. We reiterate our view that that containerboard prices are unlikely to drop significantly, given firm waste paper prices and more discipline from the leading players. Nine Dragons Paper management expects mid-Oct 2018 to be a window for ASP hikes, as downstream users will replenish inventory after the holidays in early Oct and to prepare for the peak season. We still maintain the view that market concerns about the supply/demand situation seem somewhat overdone. We believe that we are unlikely to see a sharp jump in profitability of paper makers, including LMP. But we don’t expect a major deterioration in LMP’s profitability in 2H 2018, given reduced pressure on the pricing environment due to less-than-expected industry capacity expansion. 

  Near-term cost hikes will finally be passed on. RMB depreciation and tariffs on imports of US waste paper will result in high production costs for paper makers. Nine Dragons Paper management believes that the Company can pass on the rising costs downstream even though the supply/demand dynamics this year are not as favourable as last year’s. The negative factors affected the whole industry, and we still believe that the leading players, including LMP, will outperform the smaller paper makers.  

  Tissue paper remains a growth driver. Despite high pulp costs, the profitability of LMP’s tissue paper business remained stable, given economies of scale. LMP management said to grow its tissue paper business, it will continue to adopt effective marketing strategies: a) selling its own-brand products, and b) promotion via online channels. LMP has three years’ operating history in tissue paper manufacturing, which in our view, offers the Company the option of spinning off its tissue paper operation. We still maintain the view that the tissue paper operation is a medium- to long-term growth driver for LMP.  

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