Damo: Yu Jiulong Paper (02689) “In sync with the market” rating target price of HK$7.7 and key deleveraging in the next few years

The Zhitong Finance App learned that Morgan Stanley released a research report stating that it gave Nine Dragons Paper (02689) a “synchronized with the market” rating, with a target price of HK$7.7. The company will focus mainly on deleveraging in the next few years due to reduced capital expenditure requirements. The expansion of domestic wrapping paper production capacity will be suspended. Currently, the expansion is mainly focused on pulp and fiber production capacity.

According to management guidelines, the total capital expenditure for the 2027 fiscal year ending June next year was 11 billion yuan, down to 6 billion yuan in the 2028 fiscal year. Lower capital expenditure requirements can free up more money to repay debts. Management expects the company's net debt ratio to drop from 67% in FY2026 to about 50% in FY2027, and the long-term goal is to reduce the total debt ratio to about 30%.

The bank pointed out that increasing the self-sufficiency rate in pulp production capacity will help increase wrapping paper profits. The company mentioned that self-supplied pulp can increase the profit of wrapping paper products by about 100 yuan per ton. The amount of pulp used per ton of wrapping paper is less than 20%, and the capital cost of its pulp production line is about 5,000 yuan per ton. Additional pulp production will be used to produce tissues, but the quantity is small, and the total volume is expected to be less than 1 million tons.

The bank also said that with the commissioning of the pulp production line, depreciation and amortization are expected to rise to about RMB 4.8 billion in fiscal year 2027, which means depreciation and amortization per ton in fiscal year 2027 is RMB 200, compared to RMB 185 in fiscal year 2026.