Cinda: ND PAPER (02689) reports strong performance in the first half of 2024, accelerating the integration layout of pulp and paper.

Cinda released a research report stating that it is expected that ND PAPER (02689) will achieve a net profit attributable to owners of the parent company of 12.1 billion yuan, 21.1 billion yuan, and 35.4 billion yuan for the fiscal years 2025-2027, respectively. The company achieved an income of 29.134 billion yuan (up 13.8% year-on-year) and a net profit attributable to owners of the parent company of 458 million yuan (up 146.1% year-on-year) in FY2024H2 (January-June 2024), with a sales volume increasing by 1.6 million tons to 9.6 million tons year-on-year. Excluding exchange gains and losses, the net profit per ton was 45 yuan (up 10 yuan/ton compared to the previous period). Although the profitability slightly decreased in Q3 due to weak demand at the end terminal, the company is expected to see a moderate improvement in profitability in Q4 due to the peak season and downstream inventory replenishment. Key points from Cinda include: Price hikes have taken effect, and the production and sales are booming. In FY2024H2 (January-June 2024), the company achieved an income of 29.134 billion yuan (up 13.8% year-on-year) and a net profit attributable to owners of the parent company of 458 million yuan (up 146.1% year-on-year), with a sales volume increasing by 1.6 million tons to 9.6 million tons year-on-year. In Q3, due to weak demand at the end terminal and a decline in boxboard/corrugated board prices by -1.0%/-1.4% respectively month-on-month, along with rising costs, it is predicted that the profit per ton may slightly decrease. In Q4, benefiting from the peak season drive and downstream inventory replenishment, it is expected that the company's production and sales will be booming, with sales volume expected to increase monthly. In addition, leading paper companies are working together to support price increases, and price increases letters have gradually been implemented in October, with boxboard/corrugated board prices respectively increasing by +160/+330 yuan/ton from the bottom. The recovery in the domestic economy in 2025 is expected to boost demand; on the supply side, in 2024, the total additional capacity of leading enterprises exceeded 2 million tons, with Wuzhou adding 780,000 tons, Henan Longyuan adding 350,000 tons, Shan Ying Jilin adding 300,000 tons, and Suzhou contributing 900,000 tons (the company is expected to be put into operation in batches from September to December). In 2025, the main additional capacity of leading enterprises is only 250,000 tons (expected to be put into operation in Q1 2025), Shandong Sun Paper adding 1.2 million tons (expected to be put into operation in Q4 2025), and Xinxiang Henry Paper adding 300,000 tons (expected to be put into operation in the first half of 2025, replacing the original 200,000 tons old production line), predicting that the apparent supply and demand pressure will ease. In addition, in recent years, overseas costs have risen, prices have remained high, and in October 2024, China's imported boxboard/corrugated paper totaled 395,000/193,000 tons (a decrease of 13.2% and 30.0% respectively from the peak), gradually weakening the impact of zero tariff. Optimization of product structure and accelerated layout of integrated pulp and paper. As of the end of June 2024, the company's total pulp and paper production capacity reached 26.81 million tons, with papermaking/raw material production capacities of 21.67 million tons and 5.14 million tons, respectively. In terms of finished paper, the capacities of cardboard (carton)/ corrugated board/ grey board white/ cultural paper/ special paper were 13.43/3.7/2.6/1.67 million tons, and the Guangxi Beihai base will add 1.2 million tons of white cardboard and 700,000 tons of cultural paper respectively in Q3 and Q2 of 2025, while the Jingzhou base in Hubei will add 600,000 tons of cultural paper and 1.2 million tons of white cardboard respectively in Q1 and Q2 of 2025, continuously optimizing the product structure. In addition, the company continues to deepen its layout in raw materials, with Guangxi adding 1.1 million tons of chemical pulp and 600,000 tons of mechanical pulp in Q3 2024, and Hubei adding 650,000 tons of chemical pulp and 700,000 tons of mechanical pulp in Q2 2025. By the first half of 2025, the company's total paper/pulp production capacity will reach 25.37 million tons/ 8.19 million tons, and the synergistic advantages of pulp and paper are expected to continue to increase. Risk warning: The recovery of downstream demand is weaker than expected, industry competition intensifies, and the implementation of production capacity falls short of expectations.