Citibank: Maintaining Nine Dragons Paper's (02689) “neutral” rating and target price of HK$8.8 is expected to put pressure on profit margins in the first half of FY2027

The Zhitong Finance App learned that Citi released a research report stating that it will maintain Nine Dragons Paper's (02689) “neutral” rating and target price of HK$8.8, and will review the forecast after the September 24 results briefing. The company's financial results for the fiscal year ended at the end of June this year were generally in line with expectations. Net profit attributable to shareholders was RMB 3,581 billion, up 102.6% year on year, and about 2% higher than the median profit forecast of RMB 3.5 billion in August. Revenue increased 18.6% year over year to 75 billion yuan, sales volume increased 14% year over year to 24.5 million tons, and average sales price increased 4% year over year.

The bank pointed out that the company recorded depreciation of property, plant and equipment of RMB 277 million and exchange losses of RMB 184 million, so the basic net profit should be close to RMB 4 billion. However, net profit per ton in the second half of the fiscal year fell 13% year on year to RMB 174, the first contraction after three consecutive interim earnings margins remained flat, reflecting weak consumption, and the restoration of strong profit margins brought about by vertical integration of pulp has largely been completed. The bank expects profit margins for the first half of the fiscal year ending the end of December this year to fall further on a semi-annual basis, as the cost of waste paper in the first fiscal quarter ending at the end of September appears to be leading the paper price inflation.