Zheshang: ND PAPER (02689) repurchases perpetual bonds to reduce financial costs, benefiting from the increase in boxboard paper prices during the off-season, maintaining a "buy" rating.

Zheshang's research report stated that they maintain a "buy" rating on ND PAPER (02689) due to the financial cost savings brought about by the perpetual bond repurchase and the upturn in the corrugated paper industry. They predict the company's revenue for FY2026-FY2028 to be 72.7/74/74.8 billion yuan, respectively increasing by 15%/2%/1%, and achieving a net profit attributable to the parent company of 3.5/4.3/5 billion yuan, respectively increasing by 99%/23%/15%. Zheshang's main points are as follows: The company has initiated a $400 million perpetual bond repurchase tender offer The company announced the initiation of an offer to repurchase all outstanding $400 million perpetual capital securities with a coupon rate of 14.00% in cash. This repurchase aims to optimize the capital structure and enhance the company's profitability. The repurchase funds will come from a 2 billion yuan three-year syndicated loan approved by the company in June 2026 and the company's own funds. Repurchase to increase profit and optimize capital structure This repurchase tender offer will significantly improve the company's financial position by directly increasing profits and demonstrating management confidence. Significant savings in financial costs: The coupon rate of the perpetual bond is as high as 14.00%, considering the current interest rate environment, it is expected that the new 2 billion yuan syndicated loan will have a lower interest rate. In FY2025, the perpetual bond generated an expense of approximately 400 million yuan; if the perpetual bond is fully redeemed, it is expected to significantly reduce the company's interest expense level. Management confidence demonstrated: Ms. Zhang Yin, the company's controlling shareholder, and her family collectively hold about 81% of the unredeemed principal of the perpetual bond, and have committed to returning it at the general repurchase price after the early bird period, voluntarily waiving a 7% premium, saving the company approximately $22.68 million in premium interest, reflecting a high degree of alignment of interests between management and the company and confidence in future development. Optimization of capital structure: After the repurchase is completed, the relevant securities will be cancelled and no longer be in circulation, helping to optimize the company's capital structure. Pulp and paper bottoming out, corrugated paper entering an upturn cycle, leading resilience highlighted Kraftliner & Whiteboard Paper: Currently, prices are at historical lows, with prices of Kraftliner at 4600 yuan/ton and Whiteboard Paper at 4018 yuan/ton as of June 5th, both at historical 0% and 3% percentiles, respectively. Following the continuous rise in corrugated paper prices, the overall profitability of the pulp and paper sector is already at a historical low (theoretical gross profit margin of Kraftliner/Whiteboard Paper on June 5th is -10%/-9%), with the bottom of the pulp and paper cycle further solidified against a backdrop of a limited downside in pulp prices and continued decline in paper prices. Corrugated & Linerboard Paper: Recently, factors such as rainfall affecting waste paper recycling, rising external waste prices, and release of export orders have pushed up waste paper prices and led to price increases in the off-season; tracking corrugated paper/linerboard paper prices at 3700/2981 yuan/ton, respectively at historical 31% and 44% percentiles, price increases land quickly, considering Nine Dragons' production capacity, the profit elasticity of price increases is highlighted. Pulp-paper integration builds cost advantage, capital expenditure turning point has been reached The company continues to advance its strategy of pulp-paper integration, deepening the moat of cost, while the peak of capital expenditure has been passed, with future profit elasticity expected to continue to be released. As of FY2026H1, the company's commissioned pulp capacity is approximately 6.1 million tons per year, with a planned additional 2.5 million tons of pulp capacity, expected to be commissioned from the end of 2026 to 2027; after all projects are commissioned, the company's total annual designed fiber raw material capacity is expected to reach approximately 10.7 million tons, with a high proportion of self-made pulp continuing to optimize production costs. The company currently has no new papermaking capacity expansion plans, with future investment focused on upstream pulp, capital expenditure having peaked, and expected to decline marginally in the future, improving the company's cash flow situation. Risk warning Risk of fluctuating raw material prices, intensifying market competition, weaker-than-expected downstream demand.